Beyond Meat (BYND) has grown to become a household name in the plant-based meat industry, with its brand value gaining significant traction over the past few years.
It develops meat directly from plants, helping consumers to enjoy the taste, texture, and other sensory qualities of customary animal-based meat products without skipping the nutritional perks.
Additionally, plant-based meat products incorporate environmental advantages, which play a significant role in terms of demand growth from environmentally conscious consumers.
Beyond Meat’s stock is currently at a pivotal point, and the company’s upcoming results are likely to swing shares either way based on the underlying numbers.
On the one hand, Beyond Meat is well positioned to keep expanding its market share in the growing meat industry, which is expected to exceed $1 trillion by 2025.
With consistent investments in scaling its production capacities and a strong brand that contributes to its international reach, I believe that Beyond Mead should reap the fruits of growing demand for plant-based meat better than most.
On the other hand, the company’s revenue growth has been disappointing lately, while the bottom line is struggling to reach positive margins.
Consequently, unless the company turns around its performance sooner than later, the stock is likely to continue sliding lower — especially when dilution concerns appear on the menu, given that the company will likely need fresh cash to stay afloat and expand the business.
I am a believer in Beyond Meat’s product and mission, and since I enjoy the product, I will continue to be a customer. That said, as an investor, I have serious concerns regarding the company’s ability to generate consistent profits in the medium term, which will be crucial for whether the stock rebounds meaningfully or plummets further on dilution fears.
I continue to see Beyond Meat as a speculative play, and so I remain neutral on the stock.
Why Q4 Results Are Important
If you recall, Beyond Meat’s Q3 results were quite underwhelming. Net revenues grew by just 13% year-over-year, to $106.4 million. While International net revenues did grow by a stimulating 143% year-over-year, U.S. net revenues slipped 13.9% during this period.
This is very concerning and clearly unfitting to a “growth company” in a “growing industry.” After all, for most companies, the U.S. market is the most important market. Hence, the revenue decline was straight ugly.
As far as profitability goes, Beyond Meat posted a loss of $54.8 million for the quarter. If the underwhelming revenues weren’t worrying enough, losses widened significantly from the prior-year period’s loss of $19.2 million.
Moving towards Q4, analysts expect that the company will post a loss per share of ($0.69) and revenues of nearly $200 million, implying no revenue growth year-over-year.
In my view, unless Beyond Meat smashes these estimates and improves margins in the medium term, the stock will likely tread lower.
At its current run rate of around $200 million in losses, the company will simply not be able to operate for more than a couple of years without an external cash injection.
Note that the company ended Q3 with a seemingly rich cash position of $886 million. However, consider that $300 million to $400 million should always be on the balance sheet to fund Beyond’s forthcoming investments and expansion plans.
Hence, I forecast that unless the company expands its margins and cut some of its losses, dilution will be inevitable in the next couple of years.
Wall Street’s Take
Turning to Wall Street, Beyond Meat has a Hold consensus rating, based on one Buy, seven Holds, and one Sell assigned in the past three months. At $66.71, the average Beyond Meat price target implies 10.9% upside potential.
Conclusion
I believe that Beyond Meat has a great product and the potential to be a leading player in the plant-based meat industry.
That said, there are plenty of financial risks attached to the stock, evident by the stock’s short interest, which currently stands at a steep 33.6%. Hence, I will stay neutral on the stock for the time being.
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