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Is Beyond Meat Stock a Buy? | The Motley Fool

Shares of

beyond meat (bynd -2.77%) went on a huge run after its second quarter earnings report on August 2nd. 4. The plant-based meat producer’s revenue declined 2% year-over-year to $147 million, missing analyst estimates by $2 million. its net loss widened from $19.7 million to $97.1 million, while its adjusted net loss of $1.53 per share missed the consensus forecast of $0.39.

For the full year, management expects revenue to grow 1% to 12%, compared to its previous forecast of 21% to 33% growth. the company also announced that it would lay off approximately 4% of its workforce to save $8 million a year.

Reading: Is beyond meat a good investment

Those headline numbers looked ugly, but beyond meat stocks, they were unexpectedly up 22% on August 1. 5 and advanced another 3% the next day. the underlying cause was probably a bit of a squeeze, as more than 40% of beyond meat’s float was shorted in mid-July. but should investors chase that volatile rally and expect even bigger gains?

beyond the days of high meat growth are over

In 2019, beyond meat’s revenue soared 239% to $298 million as the plant-based meat craze took off. however, its revenue grew just 37% to $407 million in 2020, as restaurant closures during the pandemic partially offset its retail sales. the top line then rose just 14% to $465 million in 2021 as consumers moved away from its more expensive plant-based products. some retailers and restaurants have also canceled testing of their products as they battled headwinds related to covid and inflation.

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In the first half of 2022, beyond meat revenue fell 0.4% year-over-year to $256 million. we are. revenue increased 2.4% to $186 million, as growth in its retail segment offset its decline in the foodservice business. however, international revenue fell 7.1% to $70 million, as lower retail revenue offset anemic growth in its foodservice segment.

During the second-quarter conference call, CEO Ethan Brown attributed that slowdown to “inflationary pressure on consumer spending.” Brown also warned that as inflation drove consumers away from more expensive products, the U.S. The household penetration rate of plant-based meat products suffered its first sequential contraction in more than four years during the second quarter.

brown admitted that those headwinds were causing a “volume loss” as shoppers turned to animal protein and private label. beyond meat continues to work with mcdonald’s, yum brand and pepsico to launch new products, but none of those high-profile partnerships are moving forward. needle still.

the company’s margins are collapsing

Beyond meat, total pounds sold were actually up 14.6% year-over-year in the second quarter, but that volume growth was completely offset by a 14.2% decline in revenue net per pound, mainly caused by liquidation sales and foreign exchange difficulties. To make matters worse, sales of Beyond Meat Jerky through its Planet partnership with Pepsico further weakened gross margin.

As a result, the company posted a negative gross margin of 4.2% in the second quarter, compared to a positive gross margin of 0.2% in the first quarter and 31.7% in the same period last year. previous year.

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For the second half of the year, CFO Phil Hardin expects gross margin to return to positive, but remain in “low to mid single digits” and “well below historical norms.” In addition to laying off staff, Beyond Meat will defer some of its expenses to stabilize its short-term profitability. however, investors should not expect the company to break even any time soon.

Is the stock undervalued?

With a market cap of $2.4 billion, Beyond Meat is still valued at roughly five times this year’s sales. That price-to-sales ratio is arguably too high for a company expecting to generate single-digit sales growth this year. its widening losses will also make it a difficult stock to buy as interest rates rise.

It was easy to overlook the weaknesses of meat when it was still generating triple-digit sales growth, but that honeymoon is over. now it faces an existential crisis as a growing number of competitors enter its crowded niche market for plant-based meat products.

beyond the meat is not out of the question, but major setbacks have made it an easy target for short sellers. shorts may be getting too greedy right now, but investors shouldn’t expect beyond beef stocks to generate significant long-term returns until their growth accelerates, margins expand, and net losses close. reduce.

Until that happens, Beyond the Meat will be just a yo-yo for day and swing traders. long-term investors should avoid it and buy more promising growth stocks.

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