Beyond meatit is (PARND 7.18%) the stock fell 9% to a new all-time low on Nov. 9 in response to its third-quarter earnings report. The plant-based meat maker’s net revenue fell 22.5% year-over-year to $82.5 million and missed analysts’ expectations of 2.1 million of dollars. Its net loss fell from $54.8 million to $101.7 million, resulting in a loss of $1.60 per share and significantly missing the consensus forecast of $0.45.
Beyond Meat expects its revenue to decline 9% to 14% for the full year, which would represent a significant slowdown from its 14% growth in 2021, its 37% growth in 2020 and its growth by 239% in 2019. This continued deceleration, along with its mounting losses, chased the bulls away and attracted a sloth bear. But could Beyond Meat’s sharp decline also represent a long-term multibagger opportunity for investors?
Beyond Meat faces an existential crisis
Beyond Meat sprouted like a weed in 2019 as restaurants and retailers eagerly jumped on the bandwagon for plant-based meat products. But in 2020, the pandemic closed restaurants and pushed budget-conscious consumers back to cheaper animal meat products. This slowdown persisted throughout 2021 and was exacerbated by stiff competition from Impossible Foods, Kelloggfrom Morningstar Farms, and Tyson Foods‘ vegetable meats division.
Beyond Meat initially thought its business would stabilize in 2022. In its May first-quarter report, it forecast revenue to grow 21% to 33% for the full year. But it cut that forecast to just 1% to 12% growth in August, followed by another cut in the forecast last month, which was reiterated in its current outlook for a full-year decline.
Beyond Meat blamed the drop primarily on inflation, which caused shoppers and restaurants to buy cheaper animal protein instead of its plant-based products, as well as increased competition. These headwinds are also compressing its margins by limiting its pricing power, forcing it to liquidate excess inventory, and increasing its production and transportation costs.
Its sales of Beyond Meat Jerky through a joint venture with PepsiCo, which generates much lower margins than its main chilled products, is putting further pressure on its gross margin. Beyond Meat also paid some of its co-manufacturing partners, including PepsiCo, underutilization and termination fees for not producing and selling enough product.
As a result, Beyond Meat’s gross margin turned negative in the first nine months of 2022, compared to its positive gross margins of 25% in 2021 and 30% in 2020. It expects its margin gross remains negative in the fourth quarter, but is also improving. slightly on a sequential basis as it pays less underutilization and termination fees. But despite this slight improvement, its margins are likely to remain negative and its losses are expected to widen for the foreseeable future.
The Bullish Case for Beyond Meat’s Long-Term Recovery
Beyond Meat’s declining revenue, negative gross margin, and rising losses, all strongly indicate that the plant-based meat craze may be over. However, the company still believes its operating cash flow will turn positive by the second half of 2023 as it aggressively cuts costs and scales its business. It has already laid off more than a fifth of its workforce in the past 12 months and estimates the reduction will reduce its total operating expenses by about $39 million over the next 12 months.
The company also plans to liquidate more of its inventory, reduce its ability to cut costs and address underutilization charges, and continue to focus on its long-term development of new plant-based products. beef, pork and poultry base.
During the conference call, CEO Ethan Brown said Beyond Meat would maintain its “unwavering focus” on the $1.4 trillion total addressable market for plant-based meat products. As for the competition, Brown expects a “disruption” to occur as more of his rivals “step back or consolidate a less crowded playing field”.
Brown also believes that plant-based meat products will achieve price parity with their animal-based counterparts over the long term, thanks to economies of scale, better brand recognition and less reliance on marketing campaigns. marketing and promotional partnerships.
In short, the next few quarters will be tough, but Beyond Meat still expects to be the last man standing in the plant-based meat industry. Unfortunately, its net loss nearly tripled year-over-year to $299 million in the first nine months of 2022, and it ended the third quarter with just $390 million in cash and cash equivalents as she was carrying $1.1 billion in debt.
In this context, a reduction of $39 million in its annual operating expenses does not seem aggressive enough. That’s why bears are still betting heavily on Beyond Meat’s continued decline, with 37% of its outstanding shares still short as of Oct. 13. Beyond’s enterprise value of $1.54 billion (which includes its debt) also values the company more than three times next year’s sales – so it can’t be considered a bargain yet.
Therefore, Beyond Meat looks more likely to fall to zero rather than more than double to reach its initial public offering price again. Investors should consider avoiding this struggling trending stock and sticking with more reliable options like PepsiCo.