Beyond Meat (NASDAQ:BYND) reports its 2019 earnings on Thursday, Feb. 27. It is likely to show substantial growth in net revenue and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). The stock price is set to jump if growth outperforms expectations.
Last quarter, its second report since going public in May, the company made its first quarterly profit. It earned $4.1 million on $92 million in sales. This was up 250% from the previous quarter’s $26.3 million.
Moreover, its adjusted EBITDA turned positive and reached $11 million. This was up from a loss of $5.7 million.
Expectations Are Lower
More importantly, the company predicted that net revenue would reach $265 million to 275 million for 2019. That implies Q4 net revenue will be $65 million to $75 million since year-to-date sales were $199.4 million.
Since Q3 net revenue was $92 million, this means the company expects lower Q4 net revenue. It implies over 24% negative sequential growth.
But that seems a little hard to believe given that quarter-over-quarter growth in revenue up until now has been exponential. Maybe the company is being overly cautious or wants to outperform expectations.
The same is true with adjusted EBITDA. For example, Beyond Meat said it expects $20 million for the full year. Since year-to-date adjusted EBITDA is already $15.8 million, that means Q4 will be just $4.1 million.
However, that just doesn’t match up with last quarter’s $11 million in adjusted EBITDA.
Lower Margin Expectations Seem Unrealistic
Moreover, the company’s guidance also implies lower EBITDA margins.
For example, adjusted EBITDA margins so far this year have been 7.9% on average. In fact, Q3 showed 12% margins.
But based on the implied company guidance, adjusted margins will fall to 5.9%. I got this by dividing the implied Q4 adjusted EBITDA of $4.1 million by the mid-point of expected Q4 sales of $70 million.
In other words, the company wants us to believe that sales and margins will dip in Q4. That is just not realistic, especially since Beyond Meat highlights its “strong revenue growth with multiple levers to further accelerate growth” in its presentation.
Therefore, the most likely reason for this curious guidance is that it expects moderate to higher growth, although not accelerated growth. Beyond Meat stock may not hold up so well if it doesn’t outperform.
Analysts Don’t Agree With Beyond Meat
Analysts polled by Seeking Alpha believe that Q4 net revenue will hit $81.5 million in Q4. That is substantially higher than the implied company mid-point guidance of $70 million.
Moreover, Barron’s reported that Credit Suisse analyst Robert Moskow expects 2020 revenue of $380 million and $681 million in 2021.
That is over $110 million higher than the company’s expected 2019 sales of $270 million at the midpoint of guidance.
It also implies growth this year of over 40% in 2020 and 79% for 2021. So far Beyond Meat has not guided for its 2020 and 2021 sales.
Beyond Meat Stock Will Hang on Outperformance
One thing is for sure. If the company’s lower expectations come to pass Beyond Meat stock may stop rising. This is because right now it is pretty richly valued.
For example, at today’s price, Beyond Meat has a market value of $6.9 billion. That is 26.5 times the company’s higher-end guidance for 2019 sales of $275 million.
Moreover, it represents a rich 19 times 2020 sales expectations of $380 million. Even if we use the $681 million estimate by Credit Suisse for 2021 sales, the valuation is still high at 10.7 times forward sales.
The bottom line: Hold on to your hat. If revenue and earnings outperform expectations for 2019, Beyond Meat stock will keep rising. If not, the stock will likely fall to a much lower valuation.
As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide which you can review here. The Guide focuses on high total yield value stocks. Subscribers get a two-week free trial.