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Is Beyond Meat a buy now after it dropped 75% year to date in 2022?
Right now, Beyond Meat is trading around $16, which is below its IPO price of $25.
Is Beyond Meat’s share price ever going to recover or is it going to zero?
Today, let’s do a deep dive into this alternative meat company.
Beyond Meat Financial Health
Let’s first go through its financials.
I want to find out answers to the following questions:
- Does it make money every year?
- Does its revenue increase every year?
- Does it have a healthy operating profit margin?
- Does it have positive operating cash flow?
- Can it cover its short-term interest payments?
Below are Beyond Meat’s quarterly income statements.
As you can see, both the gross profit as well as operating income are negative.
What does it mean?
That means it is selling its products at less than its cost price (i.e. negative gross profit)
On top of that, it still has operating expenses and R&D expenses.
For the most recent quarter that ended in July 2022, the operating income is around -85 million.
The only bright side coming out of the latest earnings report is that they sold more pounds of products.
Now, let’s go over its cash flow.
For any business, it’s important to have positive operating cash flow.
That means your business operations are generating more cash than it is taking out.
If it has a negative operating cash flow, that means you are burning cash every day (to keep the business running) until you run out of cash and go bankrupt.
Below are the cash flow statements for Beyond Meat.
As you can see, its operating cash flow has been negative since April 2021.
For the most recent quarter, it burnt 70 million.
Right now, it has a total of $450 million in cash on its balance sheet.
At this rate, it only takes only one and a half years to use up all its remaining cash.
So, financially, Beyond Meat is not doing well at all.
In fact, if you take into account its long-term debt, the equity value has become negative.
In other words, if we liquidate Beyond Meat today, shareholders get nothing because its assets are not even enough to cover the debt.
So, financially, Beyond Meat is doing very poorly.
Will Beyond Meat go bankrupt then?
Beyond Meat’s Future
With high inflation, increasing competition, and a failed test launch of McPlant in the US market,
So, is Beyond Meat’s share price going to drop to zero?
Personally, I think the chances of Beyond Meat’s share price going to zero are quite low.
First, Beyond Meat is quite an established brand in the alternative meat market all over the world.
And the alternative meat market is projected to grow at a double-digit rate in the coming decade.
So, there is still growth potential for Beyond Meat.
On top of that, it is partnering up with popular fast food restaurant brands such as Mcdonald’s and Yum Brands to launch plant-based products.
There is some encouraging news coming from Mcdonald’s UK and Ireland outlets.
Mcdonald’s also started trialing McPlant in Australia.
Although the trial of McPlant in the US was not successful, Mcdonald’s didn’t confirm that it is NEVER going to do some tweaking and relaunch McPlant in the US again.
The fact that there is a growing demand for plant-based products means that Mcdonald’s is definitely going to have plant-based products on its menu sooner or later.
With the success of McPlant in the UK, the chances are Mcdonald’s might want to try again in the US.
With regards to its partnership with Yum Brands, there has not been any major announcement of putting Beyond Meat products as a permanent item on the menu.
From my research so far, Beyond Meat is facing difficulties in manufacturing the product on time as well as commercializing the product for Yum Brands.
Lastly, the macroeconomic environment is also not good for Beyond Meat.
With rising inflation and the fading enthusiasm for plant-based meat, consumers tend to choose lower-priced animal meat over Beyond Meat premium products.
So, what has to happen for Beyond Meat to make a turnaround?
Any good news from its Mcdonald’s partnership or Yum Brands is going to be a huge catalyst for Beyond Meat.
For example, it would be a huge positive if Mcdonald’s launched McPlant nationwide.
If Beyond Meat could fix its Pepperoni production problems and further lower its cost price for Pizza Hut, then there would be a higher chance for Pizza Hut to put it on its menu.
If you look at this revenue by category graph, you will see that retail sales still account for a bigger share of Beyond Meat’s total sales.
On the retail side, Beyond Meat partnered with Pepsi and launched Beyond Jerky as its first snack product.
Initial sales were quite encouraging, but it remains to be seen whether sales remain strong in the future.
As for its existing frozen plant-based products, sales growth is slowing down due to macroeconomic factors.
So, if you don’t have a position in Beyond Meat, it’s not such a good time to enter yet because there is no clear plan from the management to turn things around and the coming recession would not help Beyond Meat’s business at all.
Would its share price go lower from hereon?
Is there any way that Beyond Meat’s share price could recover?
Here’s a list of things that we want to see:
- good news from its major partnerships with Mcdonald’s or Yum Brands
- raise capital to at least help the company stay afloat for at least the next 5 years
- reduce cost price to make products more competitive
- launch more successful products
Beyond Meat’s Quant Ratings From Seeking Alpha
Now, let’s take a look at Beyond Meat’s stock ratings.
Its Quant Rating is Strong Sell.
All its Factor Grades are quite bad except for “Growth”.