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Beyond Meat Stock May Have Further to Fall in March

Despite the recent brutal selloff in broader markets, year-to-date, Beyond Meat (NASDAQ:BYND) stock is up almost 19%. Yet BYND stock is still more than 62% below its all-time high of $239.71 seen on July 26, 2019, leaving many investors wondering if now maybe a good time to buy into the shares.

Beyond Meat Stock May Have Further to Fall in March
Source: calimedia /

I don’t think the short-term pain in equity markets is yet over, neither is it for Beyond Meat shares. The rest of March will likely bring more volatility with a downward bias. However, long-term investors may regard a dip toward the $75 level as opportunity to get long the plant-based meat substitute company.

On Feb. 27, the group released financial results for its fourth quarter and full year ended Dec. 31, 2019.

Q4, net revenues were $98.5 million, an increase of 212%, compared to net revenues of $31.5 million in the year-ago period.

Quarterly net loss was $0.5 million, or 1 cent per common share, compared to net loss of $7.5 million, or $1.10 per common share in the year-ago period.

Q4 Earnings Raised Eyebrows

The Street was surprised at the reported loss since, earlier in October, Beyond Meat had reported its first quarterly profit with its Q3 earnings numbers. And in Q4 analysts were once again expecting the company to report a net profit.

Investors were further disappointed by full-year 2020 guidance. Management is now expecting higher operating losses due increased levels of investments.

Prior to the earnings release, BYND stock had closed at $106.14. The next day, it hit an intraday-low of $85. That movement — and yesterday’s carnage — has the shares set to open just below $88.

Rivals Could Challenge Rich Valuation

Given the subdued outlook for the year, the Street is now wondering whether the company can keep up with the current aggressive growth assumptions.

Currently BYND stock trades at a forward P/E ratio of about 185, expensive by any standard, even for a growth stock. Another metric I pay attention to is the stocks’s price-to-sales (P/S) ratio, which stands at about 18x. To put the metric into perspective, the S&P 500 index average price-sales ratio is 2.3x.

It is important to remember that Beyond Meat operates in a food industry niche segment. Therefore, going forward most investors will eventually judge the company by the industry’s average valuation metrics.

The manufacturer is also facing increased competition, especially from new entrants into the meatless segment. For example, products from privately owned Impossible Foods are getting consumers’ attention. In addition, Restaurant Brands International’s (NYSE:QSR) Tim Hortons said that the group would not offer Beyond Meat products any more.

Therefore, the segment will likely draw in more companies with a wide range of plant-based food offerings. And the increased competition is likely to put pressure on the margins of BYND stock and affect its valuation levels.

Long-Term Catalysts Remain

As for revenue streams, Beyond Meat has two main segments: Gross Fresh Platform (more than 95% of revenue) and Gross Frozen Platform (about 5% of revenue).

Restaurant and foodservice accounts for about 45% of sales. Retail makes up the other 55%. The emphasis on both types of accounts is possibly a good reflection of the increasing debate on the effect of animal meat on environmentalhealth, and ethical concerns.

We can expect the discourse around reduced consumption of animal-based meat to gather pace in this new decade. We will possibly see many more Americans consuming meatless, plant-based protein foods both at home and when dining out.

FY2019 results further confirmed that the group has been expanding its supply contracts and restaurant partnerships, including McDonald’s (NYSE:MCD) and Yum! Brands’ (NYSE:YUM) KFC unit. Earlier in 2019, management also expressed interest to expand internationally, including China.

Therefore, Beyond Meat is possibly at the right place at the right time to be able to participate in the growth of meatless food segment.

Current Volatility Argues for March Caution

We’re witnessing extreme levels of volatility in the markets. In addition to the market correction, there are also wild price swings on a daily basis. Therefore, I’d urge retail investors to exercise caution. On such days, it is easy to let mostly two main emotions, i.e. fear and greed, cloud our judgement.

As markets tank, we can possibly expect a momentum stock like BYND to also fall further. If you are an investor who pays attention to short-term technical charts, you may be interested to know that the short-term analysis is pointing to potential declines. While long-term investors would like to see BYND stock go over the $100 level, traders are likely to keep the range between $90 and $70.

Therefore, based on your own risk/return profile, you may want to review your BYND stock holding and take some money off the table. Alternatively if you are experienced in hedging with options, you may consider initiating a covered call or protective put position.

However, if you believe that you’d be able to ride out any short-term potential decline in the share price, then you may decide to do nothing at this point.

Bottom Line on Beyond Meat Stock

The new decade is likely to increase consumption levels of plant-based foods. Thus we can expect more investments in this niche segment. And management will likely take the necessary steps to grow the company profitably in the long run.

Yet I do not think Beyond Meat stock will repeat its recent exponential up move in the next few weeks. It is a momentum stock that will be affected by the volatility and further market selloff.

Nonetheless, within several years years, investors who buy the shares on the dips are likely to be rewarded handsomely. In the meantime, Beyond may also be acquired.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, she did not hold a position in any of the aforementioned securities.

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