Beyond the Meat – Into the Meat Grinder (NASDAQ:BYND)

Drew Angerer

At the very beginning of this year, I concluded that Beyond Meat (NASDAQ: BYND) was a bad recipe, as business traction faded in the form of sales growth (or lack thereof) while rising costs only led to growing losses, leaving stocks still vulnerable to further pullback, with the stock trading in the mid-sixties at the time.

This has certainly materialized as the shares have lost another half of their value, currently trading at $35, although this actually marks a dramatic recovery from all-time lows of around $20 in recent weeks.

A bit of context

After going public in the $20s in 2019, Beyond Meat was one of the strongest names in terms of momentum at the time, with shares trading at $200 just weeks after the public offering. This was somehow understandable, as the company saw its sales grow from just $16 million in 2016 to $300 million in the year of the IPO, although a peak valuation of $12 billion was reported. been very demanding at 40 times sales at the time. Note that the company was close to breaking even at the time, but momentum quickly waned.

The company initially guided 2020 sales of approximately $500 million as consumers embraced its products due to increased attention to animal welfare, the environment and consumer health, all trends that are still relevant today but no longer impact business in the same way as they did before.

After the company recorded an operating profit of $0.5 million on sales of $298 million in 2019, it was the start of 2020 that was still strong, but everything went downhill from the second trimester. Of course, that coincided with the pandemic, but with Beyond Meat being active serving both quick-service restaurants that were closed, but also retail outlets, the company had decent business-to-business coverage against the pandemic and related restaurant closures.

As it turned out at the beginning of 2021, sales for the year 2020 only increased by $407 million, about one hundred million less than the initial forecast, with operating losses of $49 million. dollars also marking the deleveraging of fifty million compared to the previous year. Despite this observation, stocks were still trading above $150 at the start of 2021, which leaves me somewhat puzzled.

In January of this year, the company saw its shares fall to $65, which translated into a stock valuation of $4.1 billion, as the company took on net debt. With full-year sales of $450-475 million, valuations were very steep with unconvincing growth, but operating losses have already totaled $97 million in the first three quarters of the year, this which is a huge concern.

The resulting 10 multiple of sales, quality and taste issues, a resulting lack of demand, but on top of that huge losses made me very cautious as the net debt has already been incurred as the fall in price of the action did not provide a realistic path to provide a path of liquidity from this point of view.

And now?

In February of this year, the company job fourth quarter results with revenue of $100.7 million down one percent year over year as an unheard-of loss of $80 million was recorded as the company braced for a growth that did not occur, leading to a significant increase in the cost base. For the year, revenue was $465 million, with the big shock of course being an operating loss of $175 million.

In a sense, it was heartening to see the company aiming for 21-33% sales growth in 2022, translating into a revenue forecast of between $560 million and $620 million, as losses are no doubt expected to decline, but no indication was provided on this subject. Some improvement is desperately needed as losses are causing net debt to rise fairly quickly, although some cash is available.

On the commercial side, the company announced distribution agreements with companies such as Ritual Aid and other distribution partners. In May, the company reported first-quarter sales of $109.5 million, and although sales were up one percent from a year earlier, the company essentially job break-even gross margins, with a whopping $100.5 million loss reported. With volumes up 12%, it’s pretty obvious the company was embarking on huge price cuts to generate some sort of trading traction, adding to the bottom line losses as net debt rose above the half a billion, which is quite uncomfortable.

Although the company has maintained its sales outlook for the full year, it can be expected that more losses will be incurred and net debt will continue to rise as leverage may soon become an issue. given the lack of EBITDA, although this was incurred in the form of convertible debt.

With some 63 million shares outstanding, it is very clear that expectations have been reset somewhat. Trading at $35, equity still represents an equity valuation of $2.2 billion, or an enterprise valuation of $2.7 billion. With revenues of just over half a billion, the resulting 5x sales multiple might seem reasonable for a decent consumer package company with big margins, but the problem is that the losses approach the revenue base in the case of Beyond Meat here.

Final Thoughts

From a fundamental standpoint, Beyond Meat really misses the mark. The company’s losses are monstrous, its cash position is quickly depleted, and the company is incurring a lot of debt, with the stock price and lack of earning capacity not providing a roadmap for raising funds. So, the upside must come from other factors, including a spike in momentum, driven by short interest coverage, but that’s just speculation.

The other form of speculation is a potential acquisition, but it is also highly speculative. Still, with many large consumer packaging companies and meat producers recognizing the opportunities in this area, this presents an opportunity to buy a dominant brand in this space at a reasonable revenue multiple.

That said, the fundamental issues run deep with gross profits essentially non-existent, indicating how hard the product needs to be pushed into the market, as increased competition, often cheaper and better regarded, is quite fierce.

About Francis Harris

Check Also

Customers apparently aren’t discounting Starbucks

Starbucks sales increased in the third quarter thanks to loyal customers and cold drinks Starbucks’ …