Should You Buy the Dip in Beyond Meat?

Beyond Meat, Inc. (BYND) is a plant-based meat products provider in the United States and internationally. The El Segundo, Calif.-based company’s shares declined after the company reported disappointing third-quarter results and issued fourth-quarter guidance that was below estimates on November 11. The stock slumped 19% during the session and closed 13% lower. Over the past five days, BYND has lost 11.3% in price to close yesterday’s trading session at $83.48. The stock has declined 32.9% year-to-date. Furthermore, BYND is trading well below its 50-day and 200-day moving averages.

The maker of faux meat is currently grappling with supply chain disruptions and labor shortages. The company pointed to low overall demand as a reason for its U.S. net revenues decline. And Beyond Meat President and CEO Ethan Brown expects “continued uncertainty for the balance of this year.” The company cut its third-quarter revenue forecast last month. Following the company’s third-quarter earnings release, JPMorgan analyst Ken Goldman slashed the stock’s price target to $54, keeping an underweight rating, while Bernstein analyst Alexia Howard downgraded the stock to market perform from outperform. 

Ongoing operational challenges related to labor issues and uncertainty regarding COVID-19’s impact on demand levels are expected to affect the company’s revenues in the fourth quarter. And BYND expects to generate revenue in a range of $85 million to $110 million, which is lower than analysts’ expectations.

Here is what could shape BYND’s performance in the near term:

Stretched Valuation

In terms of forward EV/Sales, BYND is currently trading at 11.89x, which is 489.3% higher than the 2.02x industry average. Also, its 11.42 forward Price/Sales ratio  is 667.5% higher than the 1.49 industry average. In addition, BYND’s 25.40x forward Price/Book is 643.7% higher than the 3.42x industry average.

Poor Profitability

BYND’s 28.36% gross profit margin is 17% lower than 34.15% the industry average. Furthermore, BYND’s ROE, ROA, and ROTC are negative 43.24%, 8.85%, and 7.31%, respectively, compared to the 2.05%, 4.59%, and 7.29% industry averages. Also, its 47.41% levered FCF margin is substantially lower than the 5.12% industry average.

Bleak Third-Quarter Earnings Report

BYND’s net revenues increased 12.7% year-over-year to $106.43 million in its fiscal third quarter ended October 2. The growth in net revenues was due primarily to increased international sales, which was partially offset by decreased U.S. net revenues.

However, its gross profit declined 10% year-over-year to $22.98 million. Its loss from operations stood at $54 million, up 192.6% from the same period last year. Its adjusted net loss grew 212.8% from the year-ago value to $54.82 million. The company’s adjusted net loss per share increased 210.7% year-over-year to $0.87, missing the $0.39 consensus estimate by 123.1%. In addition, its adjusted EBITDA loss was $36.76 million, indicating a 757% increase its $4.29 million year-ago loss.

POWR Ratings Reflect This Bleak Prospects

BYND has an overall F rating, which translates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has an F grade for Quality, which is consistent with its lower-than-industry profit margins.

BYND has a D grade for Momentum. This is justified because the stock is currently trading below its 50-day and 200-day moving averages.

Of the 82 stocks in the Food Makers industry, BYND is ranked the last.

Beyond what I have stated above, one can also view BYND’s grades for Sentiment, Growth, Value, and Stability here.

Bottom Line

BYND is currently faced with operational challenges and supply chain issues that are expected to remain throughout the rest of the year. The company intends to rebound from the current disruptions and continue advancing in plant-based meat through innovation and investment and achieve growth in the long term. However, analysts expect its EPS to decline 210% in the current year and 21% per annum over the next five years. Also, considering the stock’s low-profit margins and lofty valuation, we think BYND is best avoided now.

How Does Beyond Meat, Inc. (BYND) Stack Up Against its Peers?

While BYND has an overall POWR Rating of F, one might want to consider investing in its industry peer, Grupo Bimbo, S.A.B. de C.V. (GRBMF), Marfrig Global Foods S.A. (MRRTY), and Loblaw Companies (LBLCF) having a B (Buy) rating.

BYND shares were unchanged in premarket trading Wednesday. Year-to-date, BYND has declined -33.22%, versus a 26.74% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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