Should you buy Beyond Meat stock? Mar 2023
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There is no doubt that the consumer taste changes over time and plant-based meat is becoming more popular. Beyond Meat is a plant-based meat company to go public back in May 2019. Its share price has had a lot of fluctuation, reaching a high of over $230/share within 2 months of the IPO. Today, its share price is around $18/share, representing a drop of over 90% from its all-time high.
To better understand this, it is best to look at the financials.
Although it was founded back in 2009, Beyond Meat is yet to reach profitability. There are a couple of red flags that are worth discussing:
Gross margin decreases for 3rd year in a row and is now negative
This means it costs Beyond Meat more to manufacture a product than they get paid for. One of the ways to significantly improve this is to increase production volume, which would reduce the cost per product.
However, that doesn’t seem to be going well. In an environment with high inflation, the revenue in 2022 was almost 10% lower than it was in 2021.
The loss from operations in 2022 was $343 million, which is over 80% of the revenue! This is primarily caused by the high SG&A expenses of almost $240m for 2022 (increased compared to the 2021 amount of $209m).
The company has a total debt position (including leases) of almost $1.2 billion with $310 million in cash.
All of this combined, begs the question, can Beyond Meat finds its way to profitability on time, or is the company on a highway to bankruptcy?
There is no doubt that the consumer taste changes over time and plant-based meat is becoming more popular. Beyond Meat is a plant-based meat company to go public back in May 2019. Its share price has had a lot of fluctuation, reaching a high of over $230/share within 2 months of the IPO. Today, its share price is around $18/share, representing a drop of over 90% from its all-time high.
To better understand this, it is best to look at the financials.
Although it was founded back in 2009, Beyond Meat is yet to reach profitability. There are a couple of red flags that are worth discussing:
Gross margin decreases for 3rd year in a row and is now negative
This means it costs Beyond Meat more to manufacture a product than they get paid for. One of the ways to significantly improve this is to increase production volume, which would reduce the cost per product.
However, that doesn’t seem to be going well. In an environment with high inflation, the revenue in 2022 was almost 10% lower than it was in 2021.
The loss from operations in 2022 was $343 million, which is over 80% of the revenue! This is primarily caused by the high SG&A expenses of almost $240m for 2022 (increased compared to the 2021 amount of $209m).
The company has a total debt position (including leases) of almost $1.2 billion with $310 million in cash.
All of this combined, begs the question, can Beyond Meat finds its way to profitability on time, or is the company on a highway to bankruptcy?
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NewsTranscript
00:00 Should you buy Beyond Meat stock? Beyond Meat is a plant based meat company that went public
00:05 in May 2019. Although the company was actually founded back in 2009, Beyond Meat is still
00:11 not profitable and the stock has fallen 90% from its highs. At current prices the company
00:17 has an enterprise value of roughly $2 billion, with $419 million in annual revenue and -$366
00:25 million in net income. To understand the company's performance, there are some red flags worth
00:30 discussing. First, Beyond Meat gross margins have decreased for three years in a row and
00:35 have now turned negative at around -6%. That means it costs Beyond Meat more to manufacture
00:41 a product than they get paid for. Not a good sign. Second, revenue growth has stalled.
00:48 Although the company grew exponentially in the past, last year's revenues were down
00:52 10% on 2021 and management is guiding for another decrease in 2023. Third, Beyond Meat
00:59 is dealing with large losses. 2022's net loss was over 80% of total revenue and this
01:05 has led to a precarious balance sheet. The company has total debt including leases of
01:10 $1.2 billion versus $310 million in cash. Quarterly cash burn means the company will
01:16 likely run out of money by the end of the year so the company urgently needs to find
01:20 a way to raise more cash. All of this explains why the company's bonds are pricing in a
01:25 significant risk of bankruptcy and why the company is one of the most heavily shorted
01:29 stocks on the street. On the positive side, Beyond Meat does sell
01:33 a good product and plant-based food trends should continue to increase. The company also
01:38 has some notable investors such as Bill Gates. But food is a difficult business and the margins
01:44 on Beyond Meat products are simply unsustainable right now. Beyond Meat can hardly raise prices
01:49 since its products are already more expensive than other items on the shelf. And even if
01:54 Beyond Meat got back to its margins of 30% the company would still be potentially overvalued
01:59 at 10 times gross profit. But shorting Beyond Meat is too risky because there could be a
02:04 short squeeze and it's too expensive due to the high amount of shares that are already
02:08 sold short. For these reasons I currently give Beyond Meat a neutral rating but these
02:13 are my personal opinions not financial advice and I've got no position in Beyond Meat
02:17 stock. For more detailed investing ideas visit our website overlookedalpha.com