Long-term investing is generally the best way to earn life-changing returns in the stock market. But unfortunately, some stocks tend to remain flops, no matter how long you wait for them to recover. With the stock falling around 99% since its initial public offering (IPO) in 2019, Beyond the meat(NASDAQ: BYND) It certainly falls into that category.
And while the stock may look like a good deal at just $0.76 per share at the time of writing (down from an all-time high of $234.90), investors shouldn’t take the bait. Let’s look at three reasons why Beyond Meat stock could fall further.
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Public stocks exist to generate profits for their shareholders. And even the most hyped companies can become irrelevant if investors lose faith in their ability to create a path to profitability. Beyond Meat’s third-quarter earnings show things are headed in the wrong direction.
Revenue fell 13.3% year over year to $70.2 million, driven primarily by weakness across its sales channels and an exit from the Chinese market due to low customer demand. But Beyond Meat’s US business isn’t faring much better, with domestic foodservice (where it sells to restaurants) down a staggering 27.3% in the period. Meanwhile, operating losses soared from $30.9 million to $112.3 million.
Beyond Meat’s deteriorating revenue is a red flag because the company has historically been viewed as a growth stock that will need to scale to turn a profit. It is clear that this is not going to happen anytime soon. And the magnitude of its operating losses suggests bankruptcy could be on the table, although management has flatly dismissed these rumors.
Beyond Meat’s main problem is that it sells a product that consumers just aren’t very excited about these days. Half a decade ago, plant-based proteins were all the rage due to their potential health benefits and concerns about environmental protection: beef production alone is estimated to contribute to 15% of global greenhouse gas emissions. And simulated meat can reduce emissions by up to 77%.
However, this turned out to be a fad rather than a lasting change in consumer tastes. Beyond Meat’s first restaurant partners, such as McDonald’sIt quickly abandoned its offerings in most markets when retail sales stagnated.
It turns out that while customers were curious to try plant-based meats, they weren’t impressed enough to incorporate these products into their daily lives. Washington Post suggests the problem may have something to do with a perceived lack of authenticity compared to real meat. But a simpler explanation could be that consumers simply don’t think the products taste very good. And that is a difficult problem to solve.
Beyond Meat does not take these challenges idly. On the operational side, management is implementing aggressive layoffs and cost-cutting measures to try to control cash burn. More importantly, they are trying to win back consumers by reworking their brand identity.
This month, the company changed its name from “Beyond Meat” to “Beyond” as it expands its product line from plant-based meats to protein drinks. If the pivot works, it could give the company much-needed diversification in a market that is expected to expand at a faster pace. compound annual growth rate (CAGR) of 9.4% to $76.56 billion by 2032.
That said, Beyond Meat’s rebranding can be taken as a tacit admission that the meat substitute market no longer has attractive long-term prospects. Investors can expect the company’s core business to continue suffering from negative growth and huge losses. The company could also face significant competition in the protein drink market from established rivals such as Muscle Milk and OWYN, the latter of which is already targeting the vegan market.
While Beyond Meat may look remarkably cheap at just $0.76 per share, there’s still room for more downside.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool posts and recommends Beyond Meat. The Motley Fool has a disclosure policy.
Three Reasons to Sell Beyond Beef Stock Before It’s Too Late was originally published by The Motley Fool
