Beyond Meat (BYND 0.95%) makes plant-based meat substitutes. There was a lot of excitement when the company's products first hit the market, but the hype has died down in recent years.
Valued at over $14 billion within a few months of its 2019 IPO, Beyond Meat has seen its stock decline 96% from that peak. After such a big price drop, contrarian investors may be wondering if the stock is worth buying. Here's why you should tread carefully.
Beyond Meat hasn't been profitable in years
One of the first reasons to stay away from Beyond Meat, or to sell it, is that the company isn't profitable. In fact, its bottom line was positive in early 2020, but it has been getting worse, not better. That said, results in 2023 have begun to show an improvement with net losses in the third-quarter shrinking to $70.5 from $101.7 million in the prior-year period. With a net margin of negative 94%, however, the company has a long way to go.
Image source: Getty Images.
It would be easy to argue the food maker is still relatively small and trying to reach scale to explain away those losses. But the numbers don't really back that view up. Beyond Meat has been losing points of distribution in the past two quarters, meaning fewer places are selling the company's products. And while overall volume sold is up, that's driven entirely by its international expansion. Third-quarter volume was down nearly 19% year over year in the U.S. retail channel and almost 38% in the U.S. restaurant channel. In other words, the market where the company made its debut looks like it's already growing tired of plant-based meat, and some investors fear a similar trend will eventually take hold overseas.
Then, there's the fact Beyond Meat announced a business review just before its Q3 earnings release. The company isn't that old, and this announcement is a clear sign of management's uncertainty regarding Beyond Meat's long-term growth prospects.
There's a clock ticking at Beyond Meat
So Beyond Meat is executing poorly right now and losing money. That's enough reason for investors to stay away (or sell the stock). But there's another important factor investors need to be aware of: The company has a convertible bond that will come due on March 15, 2027. As of Q3, the value of that obligation was just over $1.1 billion, and Beyond Meat had cash assets worth about $220 million on its balance sheet.
The conversion price on the bonds is so high it's highly unlikely any investor is going to convert it to stock, given where shares currently trade. In other words, it seems likely Beyond Meat will have to come up with the cash to pay off that debt. Only it doesn't have the cash now, and if it keeps losing money, it won't have it in 2027, either. Rolling the debt over will come with its own challenges including the potential of a very high interest rate.
That's another little wrinkle -- the converts were issued in a very different market and carry a zero interest rate. Thus, they pose no near-term problem. But if the business review doesn't do anything to turn the company's performance around, the Ides of March 2027 could be a make-or-break date for the company.
As it stands, this troubled company has high hurdles to clear, and the uncertainty makes Beyond Meat stock not worth owning for most investors.
