Is Beyond Meat now an ‘impossible’ investment?

Is Beyond Meat now an ‘impossible’ investment?

Beyond Meat (BYND), the plant-based meat alternatives company, issued a weak earnings report on Thursday, and now the stock is down 33% year-to-date.

Does this present an opportunity for bargain-hungry traders to jump in, or will buying now give investors indigestion later? (And what about those bonds?)

Let’s look at the income first. The poor results were partly due to new competition and fewer than expected US households starting to eat vegetarian alternatives to meat. Beyond Meat’s $147 million in revenue was down slightly year over year, and losses totaled about $97 million. The gross profit margin was -4.2%.

As more competitors emerge and Beyond incurs losses and debt, shares are likely to trade lower. But Beyond got off to a good start. Beyond Meat had a crucial early advantage through impressive deals with fast-food companies like McDonald’s (MCD), Taco Bell (YUM), Tim Hortons (QSR) of Restaurant Brands International, and PepsiCo (PEP). However, these opportunities have largely fizzled out. Dunkin’ has dropped a plant-based offering, while Tim Hortons now offers Impossible sausage from Beyond’s strong competitor Impossible Foods. McDonald’s has reportedly completed its trial of the McPlant Burger at domestic locations after disappointing results as international trials are underway.

Beyond Meat has done a great job of diversifying its products, but there is competition in most categories. Beyond once dominated the plant-based meats division at Whole Foods (AMZN), but now it looks more like the yogurt division, with offerings from multiple manufacturers.

The analyst community has already argued that the situation is no longer curable. No company has rated Beyond as a buy, and 15 have hold ratings, while six have a sell or underperform rating. The average target price is $25. Perhaps the silver lining for the stock is that no one is bearish anymore. But with Beyond bleeding hard cash and an already high valuation of 5x enterprise value/sales, there’s little room for success.

Without a doubt, Beyond Meat products benefit climate and animal welfare initiatives. Plant-based products are likely to become more mainstream, especially in a food chain stressed by more extreme weather. Beyond’s offerings are “green” compared to meat and dairy, though the benefits to shareholders are far more dubious.

Since going public in 2019, BYND has taken on a substantial $1.1 billion in debt to fund losses. Beyond’s zero-coupon convertible notes due 2027 trade at 39ยข on the dollar, for a yield to maturity of over 21%. Investors who believe in Beyond Meat’s financial survival for the next five years should consider these bonds instead of common stock. If redeemed at par, the bonds will return over 150% by 2027. To conserve capital, the company plans layoffs and other cost-cutting measures to reduce operating expenses, but the company may burn through the bulk of its cash in the next six to eight quarters without a significant business upturn. With the bond market closed to Beyond Meat for the foreseeable future, the company will likely issue dilutive equity to cover future losses and shore up its balance sheet.

A sizable 37.50% short interest in BYND stock can potentially keep the shares buoyant for some time, especially in a market that has become more speculative. Still, the stock is a sell at any strength. Ultimately, dilution and continued losses make the stocks uninvestable and beyond the toast.

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