Beyond Meat (BYND 1.98%) has become the market's favorite new meme stock. The alternative meat producer has been struggling for years, and its stock had dropped 97% from its first-day opening price in 2019 before its latest rally. Despite the recent interest in the stock, I believe that 2025 won't be the year that it finally makes a comeback. Here's why.
Image source: Beyond Meat.
The rally is already ending
Beyond Meat's rally definitely wasn't sparked by improving performance. It's been on the decline for years, and while operating margin is negative, even gross margin was negative for some amount of time, although it's now positive again.
BYND Revenue (TTM) data by YCharts
Meme investors seem to have caught onto a surge in short interest in the stock after the company announced that it was converting debt into equity, diluting the outstanding share count. That was followed by some actual good news in the form of an expanded partnership with supermarket superstar Walmart.
But like other meme stocks, Beyond Meat's stock is rising on retail investor enthusiasm rather than true confidence in the company's potential. The stock is already on the way down. It's now 54% off its recent highs, which is why it's so risky to invest in meme stocks.
Some retail investors may push the stock higher, aided by short sellers who are squeezed out of their position by rising prices, but investors trying to get in on the play could be left holding the bag when the selling begins and end up in a losing position.
NASDAQ: WMT
Key Data Points
The future is uncertain
The only reason to invest in Beyond Meat stock today is if you have confidence in its opportunities, and those opportunities don't look so promising right now. While there was an explosion of interest in plant-based foods when Beyond Meat first became a public company, that interest has dramatically waned.
CEO Ethan Brown pointed out that Beyond Meat's performance is tied to "softness" in the category, particularly in U.S. retail channels and international foodservice channels. It's cutting costs to get into better shape operationally, but no cost-cutting endeavors can change the facts on the ground, and those facts point to a shrinking opportunity right now.
Is there anything to feel good about? Yes. Beyond Meat has won taste tests for its plant-based foods, including burgers and chicken nuggets. There is a market for these products, as demonstrated by its expanded Walmart partnership.
Beyond Meat has a good amount of cash on hand, and changing debt into equity improves its leverage. So while the market sours on higher equity, for a company like Beyond Meat, it makes sense in this situation. Beyond Meat doesn't look like it's on life support today, but it also doesn't look like a good investment.
It's still underperforming
So far, Beyond Meat stock has kept some of its recent gains, and yet even in this position, it's still underperforming the S&P 500 this year by a huge margin.
BYND Total Return Level data by YCharts
The market has been buoyed by confidence in artificial intelligence (AI) and technology over the past few months, but many food-related industries are still dealing with the fallout of high and unrelenting inflation. It's unlikely that the plant-based meat category, which is typically a premium segment, is going to recover right now and bring Beyond Meat along with it.
I don't think there's anything the company or retail investors can do to reverse that situation before the end of the year. There's always the chance that things will improve next year, or sometime further out into the future. But the stock is too risky to invest in right now, and there are far better and less risky stocks for investors to park their money in today.
