Some on Wall Street claim that markets are efficient. That may be true over long periods, but investors are often highly irrational in the short term. Beyond Meat (BYND 1.58%) is a good example of that fact.
If you are looking at this consumer staples company today, perhaps remembering the heyday of plant-based meat products, here are three questions you should ask before you buy it.
Image source: Getty Images.
1. What happened to the fad?
Beyond Meat went public at a time when consumers were eager to try meat alternatives. Investors jumped on the stock when it held its initial public offering. And early results were impressive, with the plant-based meat alternative fad among consumers driving the company's sales higher. When sales began to fall, however, investors grew worried and began selling the stock.
Adding to the company's woes is the not-so-subtle fact that it remains a money-losing start-up. That makes it a lot harder to compete in an industry dominated by large and highly profitable food makers. If the fad that propelled Beyond Meat is over, as it appears to be, the company's long-term prospects are severely diminished.
2. Earnings aren't Beyond Meat's only problem
When you look at Beyond Meat's financial statements, there is very little to be positive about.
As noted, earnings have been terrible. But debt levels have also been heading higher despite a lack of earnings. And the company has yet to generate positive free cash flow.
Are you willing to give an unprofitable and highly leveraged company that is bleeding cash your hard-earned savings?
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3. What could change the story?
If you are still looking at Beyond Meat despite the downturn in its business and weak financials, you have to believe that something will change. So you need to step back and look at the business and ask, what is Beyond Meat doing differently that will improve its results? The answer is likely to be nothing.
To be fair, the company is streamlining its operations to cut costs. And it continues to focus on product innovation, too, noting that it just released a protein-focused drink. But neither of these things is likely to get consumers to return in droves, which is what this consumer staples maker really needs.
Beyond Meat is a high-risk bet
At the end of the day, buying Beyond Meat is a high-risk bet that the company will somehow turn its deeply troubled business around. Or, perhaps, a bet that it gets acquired by a larger peer. It usually isn't a great plan to buy a stock in the hope that it will be an acquisition target. Most investors will likely be better off avoiding this stock.
