Seeing the recent plunge of Beyond Meat (NASDAQ:BYND) shares, many investors are wondering if they should take advantage of the decline and buy Beyond Meat stock.
However, like many things these days, this decision is not straight forward.
Before leaping, take a few moments and see why it fell.
Beyond Meat is an interesting company, without a doubt. Its product is tantalizing in many ways. But interesting is in the eyes of the beholder. Interesting does not necessarily mean that the company’s stock is a great investment.
Beyond Meat Stock Goes for a Dip
Based in southern California, Beyond Meat is a manufacturer of plant-based meat substitutes. The company was launched in 2009 and spent about three years to develop its alternatives for meats such as chicken, pork sausage and, of course, beef.
Meat substitutes are attractive to many people for several reasons, including a desire to avoid meat or encourage more sustainable food sources.
The company’s first product was a chicken alternative, which hit some supermarket shelves in 2013. A beef substitute was introduced the next year followed by plant-based sausage. Beyond Meat began selling online this year, in addition to retail stores and agreements with food-service providers.
Beyond Meat conducted its IPO on May 2, 2019. The next day, shares of BYND stock were trading around $66. The price headed north shortly thereafter. A 52-week high of $197.50 was reached in October 2020, substantially higher than the 52-week low of $48.18.
Currently, shares are trading around $124, which reflects the noteworthy decline from the high.
Beyond Meat stock has enjoyed a very high valuation. Prior to the drop, its price-to-sales ratio was about 25. The company’s rapid growth helped to sustain its nose-bleed valuations, but that growth slowed to about 2.7% in the third quarter. (The forecast rate was 40%.)
Net revenue for the quarter rose 25% year-over-year, the company said. However, Beyond Meat lost $19 million during Q3 (31 cents per share), triggering the plunge.
Coronavirus Gets the Blame
Beyond Meat officials attribute the slowdown on effects of the novel coronavirus on its customers.
Specifically, it says about a third of its food-service business is fast-food chains, meaning the remainder is restaurants whose volume is influenced by dining restrictions imposed to curtail activities that could spread Covid-19.
While the pandemic is certainly a factor in this performance, some analysts who are skeptical of the company’s valuations are speaking out. They wonder aloud if the decline also resulted from weakening demand that was unrelated to Covid-19. In other words, they suggest Beyond Meat’s period of hyper-growth is approaching its limit.
One truism in the marketplace is that success breeds competition. Beyond Meat is facing challengers in the meat-substitute segment that will give consumers more choices and also make it tougher to sustain its high growth levels.
InvestorPlace’s Matt McCall, an admitted Beyond Meat skeptic, wonders in a recent column if the firm’s soaring growth represented a fad or a sustainable trend.
“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,” he says.
McCall predicts lower share prices unless the company restores – and sustains – “epic growth” figures.
Other InvestorPlace colleagues are positive on BYND stock. For example, Luke Lango writes that Beyond Meat’s fundamentals are strong and long-term growth potential “remains robust.”
The Bottom Line
BYND stock is at a crossroads.
Investors who bought the stock at lower prices but harbor doubts whether the rapid growth will return may sell and collect their profits. That would be about the only sure thing at this point.
Those who feel the company is a victim of the pandemic and are confident about its future can use this price decline as an opportunity. They will deploy the “buy the dip” strategy and add to their BYND stock holdings at well below its higher prices.
As for the skeptics, well, they likely will ignore the lower price and look elsewhere.
I’m not convinced the company can regain and keep its impressive growth. Weaker demand will stick around as Covid-19 rages. In addition, the company’s competition will intensify, eroding its early arrival advantage.
On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.