By most measures, plant-based food manufacturer Beyond Meat (NASDAQ:BYND) is on life support. Financially, BYND stock presents a case as a possible value trap. Technically, shares have hemorrhaged a worrying magnitude of equity value. Fundamentally, its economies of scale remain hopelessly out of touch with business realities. Yet speculators occasionally bid up the security, presenting opportunities for everyone else to sell into strength.
Pick the best stocks and maximize your portfolio:
- Discover top-rated stocks from highly ranked analysts with Analyst Top Stocks!
- Easily identify outperforming stocks and invest smarter with Top Smart Score Stocks
Frankly, it’s unpleasant for editorialists to broadcast negative views on any enterprise. As a Washington Post article mentioned last year, “Americans are notoriously optimistic.” Nevertheless, at some point, investors must recognize when circumstances fail to generate traction. Indeed, investors’ main sentiment should default to balanced skepticism since the consequences of getting it wrong may be catastrophic.
For BYND stock, it may have already reached critical mass but to the downside. Year-to-date, Beyond Meat has shed nearly 78% of its market value. This circumstance suggests a deeply distressed enterprise. Sure enough, the company’s Altman Z-Score of -0.42 confirms that it faces higher-than-average bankruptcy risks.
However, BYND stock gained 12% in the trailing five sessions. The spike higher coincided with positive industry news. In particular, rival plant-based food specialist Very Good Food Company (NASDAQ:VGFC) announced a partnership with Albertsons (NYSE:ACI), whereby the former will distribute its key products at the latter’s grocery stores.
It’s possible that BYND stock popped higher in sympathy. Nevertheless, the near-term bounce higher may be an opportunity to sell into strength.
Lack of Pricing Advantage May Sink BYND Stock
As the Pew Research Center and other high-level publications mentioned, younger generations tend to gravitate toward environmental and social responsibilities. One practical method for sparking meaningful change is through consuming plant-based products over animal proteins. However, the pricing angle must make sense. Unfortunately for Beyond Meat and the broader industry, it doesn’t. Therefore, investors must be extremely cautious with BYND stock.
Let’s be fair. Obviously, Beyond Meat commands broader sympathies because its success means fewer animals are sent to slaughter. As well, even in the mundane details, such as cutting down on bovine methane gases, Beyond Meat wins the sympathy card. In addition, climate change solutions represent very real money-making endeavors.
Unfortunately, the problem comes down to consumer pressures and subsequent fears of an incoming recession. Basically, households must make their dollars stretch. They’re not going to do that through “imitation” products that are priced much higher than their authentic counterparts.
For instance, at this author’s local big-box retailer, an eight-ounce Beyond Burger patty (two count) costs $4.99. However, the retailer’s own brand-name one-pound (16-ounce) ground beef patty (also two count) costs $7.19.
When you break it down, consumers are paying $0.62 per ounce of protein for the plant-based version versus $0.45 per ounce of protein for the real deal. It’s going to be incredibly difficult to convince customers to pay a nearly 38% premium just for the “feelies.”
In fact, a McKinsey & Company survey discovered that while most folks are willing to pay a premium for sustainably sourced products, this sentiment erodes to less than 10% when the underlying premium rises to 25%. Of course, 38% represents a larger figure than 25%.
Is BYND Stock a Buy?
Turning to Wall Street, BYND stock has a Moderate Sell consensus rating based on zero Buys, seven Holds, and five Sells assigned in the past three months. The average BYND price target is $10.22, implying 28.63% downside potential.
Quantitative Data Dooms Upside Potential for BYND Stock
If BYND stock were to offer a credible long-term investment proposition, the underlying business would’ve had to perform well in its most recent earnings report. Unfortunately, the quantitative data here was a mess. As TipRanks reporter Sheryl Sheth mentioned, “Beyond Meat reported higher-than-feared Q3 losses amid a sharp decline in revenue.” The diluted quarterly loss came out to $1.60 a share, far below the consensus target of a loss of $1.15. Further, revenue “plunged 22.5% year-over-year to $82.50 million, significantly lower than analysts’ expected figure of $98.11 million.
All in all, Sheth provided the succinct assessment: “Consumers are shifting purchases to cheaper protein-based substitutes as the macroeconomic scenario remains gloomy.”
Now, had Beyond Meat posted strong gross margins, it may have indicated some flexibility in terms of economies of scale. Unfortunately, it posted terrible gross margins, 18% below breakeven. Thus, when the company’s products are priced above the traditional competitors that it’s hoping to displace, the idea that BYND stock can emerge from the grave seems extremely suspect.
To use colloquial language, investors may need to accept the “L” here and move on. Use any unexpected moves to the upside to secure a better exit price, and don’t look back.
