Beyond Meat (BYND -2.35%) was an exciting new stock to hit the markets in 2019. As a potential alternative to meat-based burgers, its plant-based products were definitely full of potential. But despite launching multiple products, Beyond Meat's business hasn't been taking off. In fact, sales have been declining of late.
The company faces a challenging road ahead as it tries to generate sales growth while also paving a way to profitability. There's plenty of risk involved with buying the stock right now, but is its valuation so low that it is worth taking a chance on the business today? Let's look at the company and whether the price could finally be right for growth investors to buy shares.
Beyond Meat's earnings suggest its problems haven't gone away
On May 8, Beyond Meat reported its latest quarterly results. And for investors, unfortunately, it was another lackluster performance. Net revenue of $75.6 million for the first three months of the year declined by 18%, and the company barely squeezed out a gross profit of just $3.7 million.
The two biggest problems by far for the company have been its lack of revenue growth and its razor-thin and sometimes negative gross margins. If a business isn't generating a healthy gross profit number, that means that its prices aren't covering its costs. While impairment charges and one-time expenses can sometimes temporarily weigh on a company's gross profit number, poor margins have been an ongoing problem for Beyond Meat for more than a year.
BYND gross profit margin (quarterly) data by YCharts.
The company remains optimistic, however, that its gross margin will be in the mid to high teens this year, with the latter half being particularly stronger. Beyond Meat is focusing on reducing costs while also increasing prices.
But with demand not looking all that strong right now, it's questionable as to how well that strategy could play out, and it might not necessarily result in profitability.
A consequence of the lack of profitability is that Beyond Meat is also burning through lots of cash. Last quarter, it used up $31.8 million just from its day-to-day operating activities. Over the course of a full year, that means if Beyond Meat's financial situation doesn't improve, it could be on track to burn through close to $130 million.
And its cash and cash equivalents balance totaled $157.9 million as of the end of the period. The company isn't sitting on a huge cash balance, and if its burn rate remains high, Beyond Meat could need to raise debt or issue stock, which is dilutive to existing shareholders. Either scenario could send its shares even lower.
The stock is cheap based on revenue, but analysts are unconvinced
Beyond Meat's market cap has fallen to less than $500 million with shares of the food stock falling 89% since its initial public offering in 2019. The hype in plant-based food products looks to have abated, as is evident in the company's underwhelming financial numbers.
The stock does look cheap based on revenue, trading at just 1.4 times its sales. But with profitability potentially remaining elusive for the foreseeable future, the business is arguably still not a sustainable one to invest in.
And although the stock has been rallying of late, analysts still see more downside risk here: The consensus analyst price target for Beyond Meat is around $5.60, which suggests that it can still fall by 24% from where it is right now.
Should you invest in Beyond Meat stock today?
Beyond Meat stock is certainly cheaper than it has been in the past, but that might not be enough to make it a good investment today. There are still some big question marks surrounding the business, including whether it can raise prices to improve its margins and not hurt demand in the process.
Until it can prove that it is able to grow its business while also generating strong margins, this is a stock that investors might be better off passing on for now -- it looks more like a value trap than a bargain.
