Beyond Meat (NASDAQ:BYND) stock pulled back 31.7% to $44.09 per share year-to-date, prolonging the consolidation pattern initiated in July 2021. The company announced today the distribution expansion of Beyond Chicken Tenders to 8,000 new retail outlets. This is a significant development for this leading plant-based meat brand. Following the announcement, investors might be wondering if BYND stock is a buy.
BYND stock declined moderately after the announcement and is down 1.8% on the day. On Apr. 7, Beyond Meat released a similar announcement, with the introduction of the Beyond Burger and Beyond Meatballs at approximately 2,000 stores nationwide. This had a marginal impact on the stock. The development of distribution networks is a key factor in strengthening market positioning. However, BYND’s financials are facing a significant structural change. Rising agricultural commodity prices will continue to shrink already decelerating margins. The war in Ukraine and the sanctions on Russia, a major agricultural producer and exporter, propelled agricultural goods to fresh highs. The soybean market, a vital component of plant-based meat, tightened since the beginning of the war and is close to a 45-year high of around $17 per bushel. This challenge is likely to offset today’s constructive distribution expansion announcement, at least in the near-term.
With rising commodity prices, Beyond Meat’s costs are set to increase and weaken its profitability if costs are not transferred to final customers. Yet, BYND said during the fourth-quarter 2021 earnings presentation that it had to increase trade discounts, indicating rising competition in the plant-based meat market that will make it tough to maintain current gross margins. With a net loss of $80.4 million in the fourth quarter of 2021, the profitless business is not expected to deliver a profit in the next two years. More worryingly, the company is highly leveraged, posting a net debt of $424 million at the end of 2021 and delivering an expected free cash flow of negative $240 million in 2022.
While today’s announcement is positive for the long-term prospect of the firm, it is not enough to have a material impact on BYND’s equity story. Rising commodity prices, shrinking margins, and a profitless business will continue to weigh on the company’s stock.
On the date of publication, Cristian Docan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
