Stock Analysis & Ideas

Beyond Meat: Can It Regain Its Former Glory?

Beyond Meat (BYND) is a United-States based company that is one of the leading producers of plant-based meat substitutes. The company usually offers plant-based options to categories such as beef, pork, and poultry and already has 119,000 retail and foodservice outlets in more than 80 countries around the world. I am bullish on BYND stock.

Beyond Meat was one of the star performers during the pandemic. However, the company’s fate reversed in 2021 despite many trials. After touching the $221 per share mark back in January 2021, the faux-meat company has been consistently losing value for the last three quarters.

Its shares have faced a consistent downward trend since last June. Its bigger-than-expected losses, especially during the third quarter, have added more fire to this trend. Despite having the first-mover advantage in this highly competitive industry, BYND is facing a hard time preserving its value.

It indeed has a successful product very well capable of capitalizing on people’s craze for plant-based diets, but until now, there is insufficient data to prove the company will actually be able to successfully rebuild its value in the coming days.

Fake meat is an innovative and growing industry that is expected to expand at a compound annual growth rate of 19.3% between 2022 to 2030. Being one of the largest operators in this segment, Beyond Meat has been fairly successful in penetrating its products across a large number of national chains.

However, even after that, it is being labeled as an unappetizing investment by many these days because of the consistent declines it has been facing over the past year after peaking in January 2021.

Today’s risk-averse investors desire high returns from their investments, and they are hugely let down by the company’s inability to actively compete with the large number of direct and indirect competitors who had been gradually taking over the market. Coupled with that, the tanking levels of profitability and erosion of gross margin profile are also a matter of concern for BYND.

Alexia Howard, a Wall Street Analyst from Bernstein, had also downgraded the stock from Outperform to Market Perform a few months back, lowering the price target at $100 from $130.

Struggling Financials

Beyond Meat’s last released financial statements were a big disappointment for many. In its fiscal third-quarter results, the company’s revenue grew only by around 13% year-over-year to $106.4 million, while in the previous quarter, the revenue growth was almost 32%. Upon inspecting its results further, it can be seen that though the company’s international sales have considerably increased.

The U.S. market, which accounts for about two-thirds of its total revenues, has contracted largely both across the retail and restaurant business levels, thereby affecting its overall revenue growth. Beyond Meat has attributed such a reduction in its growth rate to the increased competition in its operating environment.

The increasing expenses are dampening the profitability levels of BYND. The company’s gross margin has decreased to 21.6% in the third quarter from 27% a year ago, and adjusted EBITDA losses have widened to $36.8 million, representing an almost 40% year-over-year increase. Notably, the company’s free cash flow burns during the first three quarters shot up to -$295 million from the -$83 million a year ago.

Wall Street’s Take

Turning to Wall Street, only one out of nine analysts have given BYND stock a Buy Rating, whereas another seven of them have suggested a Hold on its shares. One analyst has suggested a Sell. The average Beyond Meat price target is $63.29, implying 34.4% upside potential on the stock.

Partnerships Yet to Show Results

Despite not having a strong bottom line, Beyond Meat was able to attract some great partnerships during the year. The company had partnered with McDonald’s (MCD) to launch its McPlant burger and with KFC restaurants to start the highly anticipated plant-based chicken nuggets.

Its deal with PepsiCo was perhaps the best one, giving it access to newer distribution channels. However, all the popularity does not seem to help the company’s stock price that much. 

The market thinks the company’s struggles might continue even in the coming times because of certain issues. First, the fake meat market has turned out to be extremely competitive, and emerging brands like Kellogg’s Morningstar Farms have already captured a huge chunk of the market share. Secondly, the stubbornly high price of Beyond Products has curbed customer demand to a large extent.

Further, many do not consider Beyond Meat as a healthy alternative because it uses a high amount of sodium in its products to replicate the actual taste of meat. Therefore, it may be able to retain its regular eaters as of now, but its progress does not seem to be that viable in the long run.

Beyond Meat has a troubling bottom line. If it wants to reach the highs as it did back in the starting of 2021, it needs to immediately fix its fundamentals. The fake meat market is turning out to be pretty dynamic with each passing day, and Beyond Meat’s lack of profitability is making the market more skeptical of its success.

The market is finding it hard to comprehend what the company’s future growth rate will be despite major brands signing up for its products. The partnerships with KFC, McDonald’s, and other such food chains can indeed prove to be a game-changer giving the company’s income the much-needed boost in the coming days, but at present, there isn’t sufficient data to back that claim.

So, as of now, the market, and we, are kind of unsure if Beyond Meat will be able to achieve its past glory once again.

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