Remember the hype around plant-based meat? Before the COVID-19 pandemic, investors were thrilled with the potential of alternative meat products. Beyond Meat (BYND 0.95%) was at the center of that craze when it went public in May 2019 at $25 per share before trading up to a peak of nearly $235 just a few months later. At that level, the stock reached a market cap of $14 billion on little revenue and no earnings. Investors were clamoring for a slice of what was promised to be the next big trend.
Today, Beyond Meat has become a sobering lesson on the dangers of excessive market hype with shares trading at less than $7 per share, or down 97% from their all-time high. However, in recent weeks, shares of Beyond Meat have been climbing after the company announced preliminary results for its third quarter and another round of layoffs.
Is Beyond Meat stock finally headed for a turnaround?
A lot of hype but no durability
When Beyond Meat went public in 2019, it tried to rapidly scale its way to global success. Making distribution deals with numerous restaurants and grocery outlets, the company wanted its plant-based burgers and sausages in as many locations around the country as possible. This led to rapid growth in just a few years with revenue up over 400% between 2018 and 2021.
However, the growth didn't last. Even though more Americans than ever are aware of plant-based meat products with millions having tried them by now, Beyond Meat's revenue is declining. This indicates the category hasn't caught on with consumers the way the company hoped. Beyond Meat's revenue declined 8.7% year over year in the third quarter, and management now expects full-year revenue to be down about 20%.
You need durable and consistent customers to scale a food or consumer packaged-goods company. Beyond Meat has failed in this regard. Third-party analysts have tracked a decline for the entire sector with an estimated 21% volume decline for the 52 weeks ended in June 2023. The promise of a revolution that would disrupt traditional meat producers has not materialized.
The financials look bleaker
Beyond Meat's growth looks bleak, but its unit economics and profitability look even bleaker. The company posted a gross loss of $7.3 million last quarter. This means the company is losing money producing its core product, even before you add in its research, marketing, and general overhead costs.
But in reality, there are still a lot of expenses that fall below the gross-profit line, leading to some scary-looking financial statements for Beyond Meat. The company has posted a net loss of $250 million in the last 12 months on only $350 million in revenue. Investors shouldn't forget that revenue continues to decline as well.
Data by YCharts.
Beyond Meat is beyond saving
At the end of Q3, Beyond Meat had around $217 million in cash and equivalents. This gives it less than a year before it runs out of money at its current net-loss rate. The company also has over $1 billion in convertible notes on its balance sheet that are nowhere near close to their conversion price. These will eventually need to be paid back later this decade. Over the next 12 months, the company is either going to need to take on high-cost debt or do a stock offering.
Both would present major roadblocks to creating shareholder value. The debt would come with high interest rates and keep the company further away from generating a profit. An equity offering at these stock prices would heavily dilute existing shareholders, reducing their ownership stakes in the business.
It's pretty simple: Beyond Meat is running an unsustainable business and remains uninvestable unless it can vastly improve its unit economics and reinvigorate customer demand. There are no signs of this happening today.
