Don't look now, but Wall Street is starting to warm up to Beyond Meat (BYND 0.95%) stock again. The plant-based meat specialist's shares rallied after its late-February earnings update and are now up about 10% year to date, outpacing the 8% gain of the S&P 500.
The company will still likely disappoint long-term investors. The business isn't on a clear path toward steady sales growth and is generating big losses. Here's why you'll want to avoid Beyond Meat stock for now.
1. Demand is weak
A lot of the current demand slump has been driven by factors outside of Beyond Meat's control. The plant-based protein industry has been shrinking in the post-pandemic period as shoppers haven't been as willing to pay a premium for these products due to high inflation.
Still, it was jarring to see Beyond Meat's Q4 retail sales dive 23% year over year in the U.S. market. Look deeper into this slump, and you'll see worse news. The company slashed its prices with net revenue per pound down 17%, yet sales volumes still fell 7%. That's not what you'd expect to see in a stabilizing demand environment.
Beyond Meat didn't fare any better in its foodservice channel, which caters to restaurants and fast-food chains. U.S. sales dropped 26% in that segment.
2. Losses are mounting
It wasn't all bad news in this earnings update. Beyond Meat grew sales in international markets, and volumes were mostly higher. These overseas gains partially compensated for the steep slump in domestic revenues, resulting in overall sales falling just 8% year over year.
But Wall Street seems to be most excited about the steps the management team is taking to get the business back on a solid financial footing. These moves include slashing inventory, discontinuing the Beyond Meat Jerky product line, and reducing manufacturing costs. Executives called these shifts "extensive initiatives to reset the business toward sustainable operations."
However, investors have yet to see concrete signs of a return to profitability. Instead, Beyond Meat's adjusted EBITDA loss expanded to a brutal 78% of revenue in 2023 compared to a 66% loss the previous year.
3. There are better investment options
It's encouraging to see Beyond Meat's international business growing at such a strong pace, both in the retail and foodservice segments. The demand recovery in places like Europe could demonstrate a path forward for the U.S. business in 2024 and beyond. The company might be laying the groundwork for sustainable profits as well, though it's too early to tell whether Beyond Meat's cost-cutting moves are aggressive enough.
In the meantime, there are much better options for investors looking for exposure to expanding businesses in the consumer staples category. PepsiCo stock looks attractive, for example, due to the company's diverse product catalog, its stable growth trends, and its expanding dividend. In early February, management extended the company's dividend-boosting streak to 52 consecutive years.
Beyond Meat's tiny sales footprint makes its business far more volatile and less predictable. This factor sometimes sets the stage for big stock price gains like the surge that immediately followed its Q4 earnings announcement. Don't get caught up in that noise, though. Beyond Meat is still a struggling business that's unlikely to generate sustainable earnings over the next few years. Those risks make it a stock to avoid.
