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Beyond Meat Inc(BYND-Q)

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Things Are Only Getting Worse for Beyond Meat Stock

Motley Fool - Fri Mar 3, 7:15AM CST

The world -- well, maybe just investors -- became enamored with the plant-based meat industry in 2019. Venture capitalists and start-ups galore were hyping these products as the future of food and a beacon of hope in the fight against climate change. Now, almost five years later, that hype has not materialized into much of anything.

One of the few publicly traded plant-based meat companies is Beyond Meat(NASDAQ: BYND), which makes plant-based burgers, steaks, chicken, and much more. After going public in early 2019 to take advantage of industry momentum, shares of the stock soared over 1,000% in just a few short months.

But today, those same shares have fallen back below the company's initial public offering (IPO) price. With its declining sales and unimpressive profit margin, it is no wonder investors have soured on Beyond Meat and the entire plant-based meat industry.

Things have gone from bad to worse for Beyond Meat heading into 2023. So what does it mean for the stock price from here? Let's assess.

Q4 earnings: Negative gross margin

Beyond Meat reported its fourth-quarter and full-year earnings on Feb. 23. In 2022, the company's revenue declined 10% year over year to $419 million, which is not good for a business that is supposed to be in growth mode. But that is just the tip of the iceberg for Beyond Meat's disappointing financial performance. Last year, it generated a gross profit loss of $23.7 million. That's right, Beyond Meat actually lost money before getting to its overhead, marketing, and product development expenses in 2022.

A negative gross margin is unsustainable, no matter what business you run. This indicates that Beyond Meat is really struggling right now as demand for its fake meat products wanes. On the bottom line, Beyond Meat burned almost $400 million in free cash flow in 2022. With only $310 million in cash on the balance sheet, the company is going to run out of money within the next 12 months unless it can reverse this cash burn.

Where the company goes from here is unclear

Sometimes, good companies have bad years financially. Revenue rarely grows in a linear manner and can be affected by macroeconomic factors outside of a company's control.

But for Beyond Meat, I don't see a path forward toward any kind of profitability or cash-flow generation. After the plant-based meat industry went through an enormous marketing push over the last five years, plastering advertisements online, on television, and in partnerships with fast food chains, there are likely few people who haven't heard of Beyond Meat and its competitors' products.

And yet, it has barely made a dent in the global meat industry. Plus, even if the company pulls back on marketing and product development expenses (which will almost assuredly hurt its revenue growth), the company still has a negative gross margin. These are variable costs that scale with the business no matter how large or small it is.

There's no path forward for Beyond Meat's business unless it radically changes its cost structure. And that doesn't seem likely without destroying even more consumer demand.

Ignore the stock price chart

When shares of a stock fall 90%, your first instinct might be to "buy the dip" and add it to your portfolio. That has certainly worked throughout the prolonged bull market since the great financial crisis in 2008.

Do not buy the dip on Beyond Meat stock. The company has negative unit economics, declining sales, a huge cash burn, and did I mention over $1 billion in debt on its balance sheet? It is unlikely shareholders of Beyond Meat will come out of the next few years with any value left over. Avoid buying shares of this fake meat company and put your hard-earned cash to work in legitimate growth stocks.

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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Beyond Meat. The Motley Fool has a disclosure policy.

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