The last few years have been rough for Beyond Meat (BYND 0.95%). The plant-based meat stock hit a peak in early 2021 but has since been in a major downward trend, with shares falling 94% in the last three years.
After flooding the market with innovative plant-based meat products, Beyond Meat and other fake meat companies have seen customer demand dry up. Sales are declining, and the company is losing a lot of money. This combination has turned most investors sour on the stock, with an estimated 44% short interest as of this writing.
Beyond Meat stock has gone through three straight poor years. Can 2024 be the year it finally turns the corner? Or is this stock headed even lower from here? Let's take a look.
Poor margins have the company in a rut
Five years ago, plant-based meat companies were the hot new thing on Wall Street and in venture capital circles. Companies such as Beyond Meat got hundreds of millions in funding to grow their brands with the hope they would disrupt the legacy meat producers. In its first few years as a public company, it looked like Beyond Meat was taking the world by storm, with revenue soaring 600% in just a few years' time.
Today, it turns out these sales were not sustainable. Revenue has fallen consistently in recent quarters. In the third quarter of 2023, Beyond Meat's sales declined 8.7% year over year to $75.3 million. Even worse, due to the need for heavy product discounts to get inventory out the door, the company's gross margins have gone negative, at minus 9.6% last quarter. This means that Beyond Meat is losing money on every product it sells before including any overhead, employee, or marketing costs. Not great.
Negative gross margins are a terrible situation for a consumer packaged goods (CPG) company -- or really any company -- to be in. Last quarter, Beyond Meat posted a $70.5 million net loss, which is a net margin of close to negative 100%. Even though its revenue is up 415% since going public, Beyond Meat is nowhere close to turning a profit.
BYND Free Cash Flow data by YCharts.
People simply don't want fake meat products
The problem with Beyond Meat appears to be that people simply don't want these fake meat products. Consumers are speaking with their wallets. You can find products from Beyond Meat and its competitors in virtually every grocery store in the United States. Despite this, Beyond Meat sales in its home market were down 31% last quarter.
According to industry analysts, plant-based meat volumes dropped 21% in the 52-week period ending July 2 compared to a year ago. With companies selling products at heavy discounts (hence the negative gross margins), sales are likely down even more. This is an existential issue for Beyond Meat that may be unfixable.
The balance sheet is troubling
Valuing Beyond Meat stock is impossible. Why? Because it is hard to see how the company ever turns a profit. Even if it can slash its operating expenses to next to nothing, it will still be losing money as its products are sold at negative gross margins.
It can raise prices on its fake meat products, but with no brand loyalty from consumers, it will likely start seeing even greater volume declines that will counteract these price hikes. There's a reason the company was forced to start selling products below its cost of goods sold (COGS): People weren't buying them at higher prices.
Lastly, we need to discuss Beyond Meat's balance sheet. It has over $1 billion in debt in the form of convertible notes that are due in 2027. But it looks like the company will run out of cash before we ever get to that year. At the end of last quarter, it had $217 million in cash and equivalents. Over the last 12 months, the company has burned $151 million in free cash flow. That gives the company a little over a year before running out of money.
Poor unit economics, declining customer demand, and a rough balance sheet. Add it all together, and I don't think Beyond Meat stock is worth much of anything. This stock is likely headed to zero within the next few years unless it can make a miraculous turnaround.
