Optimism is growing that there could be a soft landing in the economy next year. A big bad recession may not happen, which would be great news for stocks. And so it's little surprise that in the past month, shares of Beyond Meat (BYND 0.95%) have been rising, as it's one stock that could benefit from a more favorable outlook for the economy. Can Beyond Meat's stock go even higher next year?
Could an interest rate cut give the stock a boost?
Inflation has been slowing in the country and there is the possibility that there could be at least one rate cut next year. It's by no means a guarantee, but with a potential recession taking place in 2024, there's a chance that interest rates could finally start coming down.
For a company such as Beyond Meat, which incurs losses and burns through cash, a lower interest rate makes it easier for the business to grow, because it can take out loans at a lower rate. And when interest rates decline, that means investors get lower returns from safer options, such as holding money at a bank. That can lead to more money flowing back into the stock market, which, in turn, can also result in more people buying up shares of Beyond Meat.
A top brand in a fast-growing industry
Beyond Meat is not a safe stock to own. In the trailing 12 months, it has incurred a net loss of just under $250 million on revenue of $350 million. The company's financials need a lot of work for this to be a safe investment.
But what could make the business an intriguing investment option is the potential for the company in the long run. Beyond Meat is a big name in plant-based foods, and this industry is growing fast. By 2029, analysts at Meticulous Research project that the market for plant-based foods will be worth $95.5 billion as it grows by a compound annual rate of 12.4%. The report cites Beyond Meat as one of the key players in this global market.
Why Beyond Meat isn't a lost cause
Beyond Meat is in a growing and promising industry, and its problems may come back to simple economics. Amid inflation, the company's products just aren't selling as well as they used to earlier. There are cheaper options out there and the proof is in the company's gross profit margin, which has been negative over multiple quarters.
BYND Gross Profit Margin (Quarterly) data by YCharts
The company has been relying too heavily on discounts, and that has been hurting its margins. If a soft landing takes place next year and inflation continues to fall, there may be an opportunity for Beyond Meat's margins to improve because if consumers have more purchasing power, the company may be able to scale back on discounts without hurting its sales.
There does appear to be growing demand for plant-based meat products, but it's up to Beyond Meat to figure out a way to capitalize on it while generating strong enough margins. Economic conditions are out of its control. But what it can do is perhaps minimize its offerings and focus just on top-selling products. It's a challenge for the business but if demand improves and Beyond Meat is able to achieve stronger margins, there may still be hope for this company.
Is Beyond Meat stock a buy?
Beyond Meat has a tough road ahead but if economic conditions improve, that could be the key to getting the business and the stock back on the right path. A decline in interest rates won't solve the company's problems, but it could help the stock rally.
There's still a lot of work to do before Beyond Meat becomes a tenable investment option for most investors. And unless you have a high risk tolerance, you're still better off keeping the food stock on your watch list instead of in your portfolio. Next year could be a better one for Beyond Meat, but investors should wait for its financials to improve (drastically) before buying up shares of this struggling business.
