I’ve long been a skeptic of Beyond Meat (NASDAQ:BYND). Why? A variety of reasons. Many see BYND stock as a secular growth story. But, between my concerns that “plant-based meat” is a fad, and the risk of competition limiting is its growth, I don’t see it as a great opportunity.
Until a few weeks ago, sentiment remains on the side of the bulls. In the months following March’s novel coronavirus crash, Beyond Meat soared from prices under $50 per share, to nearly $200 per share.
Yet, since October, the more bearish view on this stock has started to take hold. As a result, shares sold off in the weeks leading up to earnings. But, on Nov. 9, two pieces of bad news hit the wires (more below).
With these negative developments, it’s clear the music’s starting to stop. That is to say, things are just going to get worse from here. Sure, I’m not saying we’ll see Beyond Meat returning to its March lows. But, this is far from a “buy the dip” situation.
So, what’s the play here? Stay away. As markets absorb the recent bad news, and take into account its longstanding risks, the stock’s sky-high valuation multiple won’t last long.
BYND Stock: Recent Developments and What’s Next
As I mentioned above, Nov. 9 saw two pieces of bad news hit the street for Beyond Meat. Firstly, news that a major catalyst could be less of game-changer than previously expected. I’m talking about the company’s flagship fast food partnership deal.
Granted, its not officially off the table. Statements from Beyond CEO Ethan Brown implied his company remains a supplier. But, to what extent? That’s the question mark.
But, even if this company continues to play a role in this fast food giant’s roll-out of plant-based meat, it’s unlikely it will help move the needle anytime soon. Yet, this morsel of bad news wasn’t the worst thing to happen for BYND stock on Nov. 9.
After hours, a disappointing earnings release sent shares into free fall. With year-over-year sales climbing just 3%, the growth story backing this stock up has clearly taken a hit. What’s behind this terrible performance?
Chalk it up to the pandemic. In the second quarter, America was still in stockpiling mode. This countered weak food service sales due to the lockdowns. But, in the recent quarter, there was no “great American stockpile” to counter still-challenged food service sales. In short, no surprise revenue and earnings results missed the mark.
So, what does the next quarter hold for Beyond Meat? For now, the company has suspended guidance. But, it’s clear we likely won’t see the company come close to meeting analyst expectations in the coming quarters. And, without epic growth, expect shares to head even lower from here.
Long-Term Issues Remain on the Table
Beyond Meat’s recent hiccups may be scaring off investors today. But, there are plenty of long-term concerns that could scare them further. That is to say, as more investors realize this company’s growth potential is far from a slam-dunk, shares will no longer sustain their current rich multiple (forward price-to-earnings, or P/E ratio, of 277x).
What are these long-term issues? Namely, as I’ve said many times before, the risk “plant-based meat” is more fad than megatrend. Some may believe that concerns over the environment and personal health will drive carnivorous towards a plant-based diet. But, it’s questionable whether this processed, chemical-laden product is healthy for you. As for the environmental benefits? Some scientists say they’ve been overstated.
In short, there’s more sizzle than (plant-based) steak behind the narrative that meat eaters will fast pivot to this product to save the planet — and their health.
Yet, even if plant-based meat does soar in popularity beyond just vegans and vegetarians, who’s to say this company will reap all the benefits? With major food companies and rival plant-based meat startups competing for the same market this company could have a tough time sustaining sales growth. High competition may impact the ability to boost margins as well.
Without continued strong growth, and materially improved margins, it’s doubtful Beyond Meat’s rich valuation will hold up. In turn, shares could keep on heading lower from here.
Just Stay Away
After the big pullback post-earnings, some investors who missed the boat on this plant-based meat play may feel the itch to dive in and “buy the dip.” But, as I detailed above, that’s the wrong move. As its growth story begins to crumble, it’s doubtful we’ll see a meaningful share price rebound in the immediate future.
And, with the risk shares continue to head lower in the long-term, there’s only one call to be made on BYND stock: stay away.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.