The stock market rally that kicked into high gear in late 2023 hasn't left investors with many screaming buy opportunities. The tech-heavy Nasdaq Composite is up 37% in the past full year, and the S&P 500 jumped nearly 22% in that time.
Value-focused investors like to hunt for stocks that have been left out of these types of rallies in hopes of finding a hidden gem. Previously well-loved stocks can find their way back into Wall Street's good graces, after all, potentially supercharging returns for patient investors.
Beyond Meat (BYND 0.95%) and Etsy (ETSY 0.34%) certainly meet that first criterion of having fallen out of investors' favor in recent months. But which stock has the better chance at delivering strong returns from here?
Etsy's growth vs. Beyond Meat's contraction
The good news is both companies' earnings were hurt by industrywide demand challenges that aren't likely to last forever. In Beyond Meat's case, inflation combined with a pandemic growth hangover to push sales of its plant-based meat products lower in 2023. Etsy was hit with similar issues that pressured sales in its consumer discretionary e-commerce niche.
Yet Etsy is still a large and growing business, with revenue rising 7% in the most recent quarter. Beyond Meat has a much smaller sales footprint, and revenue fell 9% last quarter, compared to a 30% slump in the prior quarter. "We are disappointed by our overall results," Beyond Meat CEO Ethan Brown told investors in early November. Investors are disappointed, too, given that annual sales are projected to fall to just $330 million this year, down from the 2021 high of $461 million.
Cost-cutting plans
The two companies' management teams are taking their growth challenges seriously. Beyond Meat has promised investors "decisive measures," on the way, aimed at returning the business to profitability. Management is reviewing their restructuring options right now, so investors will have to stay tuned for those details.
Etsy is further along in its recovery process, having already announced a management shakeup along with layoffs of 11% of the workforce. These moves should start improving the company's 14% operating profit margin in 2024.
Beyond Meat, on the other hand, is generating losses of more than 50% of sales. It could be at least another year before investors see that figure return to solidly positive territory. That's another good reason to like the e-commerce specialist over Beyond Meat's stock right now.
Stock prices are down
Both stocks are valued at deep discounts compared to their pandemic highs. Etsy stock trades for less than 4 times annual revenue, down from its peak of 20 times sales. Beyond Meat is available at a fire-sale price of just 1 times sales -- down from nearly 30 in early 2021.
Investors will find more to like about Etsy, even at its higher premium. Sure, Beyond Meat's stock could get a quick lift if management announces an aggressive restructuring plan in early 2024. It remains a leading brand in its food industry niche, which should soon return to growth in the core U.S. market.
But Etsy is far less risky thanks to its financial strength and large, growing sales footprint. There are more expansion options available to the tech specialist, too, as it adds value to its platform for buyers and merchants. Payments processing and advertising services are popular, for example, and Etsy just revamped its search results to make product browsing more intuitive for shoppers.
Keep Beyond Meat on your watch list, but Etsy is the clearly better stock for investors seeking a turnaround story.
