Growth Is Already Priced Into Beyond Meat Stock

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Beyond Meat (NASDAQ:BYND) hasn’t done very well lately. Granted, since last March its up 70%, but in the last three months, BYND stock has fallen more than 30%. Unfortunately, the stock is likely to tread water here for a while as its growth prospects are already forecast into the price.

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Something has to make sentiment on the stock turn around for investors to profit here.

I have been consistently critical of Beyond Meat’s valuation. For example, on Nov. 18, I wrote that BYND stock was too high at 20x revenue while growth is forecast to stall. The stock was at $134.01 then, well above today’s price.

In fact, I had a similar theme on Aug. 12, when the stock was at $123.83. BYND stock had a spike during that period but it has completely wiped that out since then.

In other words, BYND stock has been highly volatile. This is typical of a stock that is too high in terms of valuation.

I suspect that going forward BYND stock might end up treading water, just as it has done since August. This is because much of the growth forecast is already discounted in the stock price.

Valuing Beyond Meat

Beyond Meat stock trades at very high multiples of revenue and earnings. This is not going to last for a company that has lost its growth traits.

For example, on Nov. 9 Beyond Meat reported that net revenues grew just 2.7% year-over-year to $94.4 million. But Q2 net revenues were $113.3 million and Q1 was $97.1 million.

So Q3 revenue fell by $18.9 million quarter-over-quarter, or 16.7%. And from Q1 it is down 2.7%.

Moreover, this is not a company that is in growth mode. The Covid-19 pandemic has taken away the taste for meatless meat, even during Q3 when economic activity increased. Earnings growth has stalled as well. Net loss increased from $10.2 million in Q2, to $19.3 million in Q3, an increase of 47% from the previous quarter in losses.

Even adjusted EBITDA deteriorated. In Q2 it made positive $11.7 million. But this fell to a loss of $4.3 million in Q3.

The problem is that analysts already forecast $640 million in sales for 2021. This puts BYND stock on a very healthy 11.6x sales multiple.

Moreover, earnings growth expectations are not that high. For example, by 2023, analysts expect just 84 cents per share in earnings. That is an incredibly high price-earnings ratio of 139x. And that is for two years in the future.

Moreover, the forecast for 2026 is only $2.44 EPS. Its forward P/E was 47x. But of course this far out, earnings need to be brought back to present value.

At a 15% discount rate, EPS is $1.21 and the P/E is very high at 96x. In other words, taking a longer view doesn’t help the valuation metrics for BYND stock.

What To Do With BYND Stock

Typically, what will happen in this kind of situation is that the stock will tread water until one of three events happens. Either the earnings will catch up to the stock price, or earnings growth will spike above existing forecasts. Of course, the stock could keep on falling, but I suspect this won’t happen for a while.

Of course, there is no way to model the second scenario. The most likely scenario is the first one, where BYND stock treads water for at least a year.

That does not mean it won’t rise. For example, just like there was a spike in the last six months in BYND stock, its return to a flat price gain is highly likely. This is because the market realizes that the valuation is too high at this point.

On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Mark Hake runs the Total Yield Value Guide which you can review here.

Mark Hake writes about personal finance on mrhake.medium.com, Newsbreak.com and Beehiiv.com.


Article printed from InvestorPlace Media, https://investorplace.com/2021/01/bynd-stock-growth-already-priced-in/.

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