Founded in 2009 by Ethan Brown, Beyond Meat Inc. (BYND, Financial) is known for its plant-based meat substitute. The company's mission is to create delicious, nutritious and sustainable protein so that people can "Eat What They Love" with no sacrifice required.
Beyond Meat's products are made from a variety of non-GMO plant proteins, including peas, brown rice, mung beans, and fava beans. These proteins are combined with water, spices, and other ingredients to create a product that looks, cooks, and tastes like meat. The products are also free of gluten, soy, and cholesterol.
While its shares have slightly recovered in 2023, they have recorded losses of over 60% over the past year. I am not optimistic about Beyond Meat now as it has several important fundamental weaknesses and the second-quarter report was disappointing.
The prospects of the plant-based meat industry look bright
The plant-based meat industry is a rapidly growing market, with global sales expected to reach $24.80 billion by 2030 according to a report by Research and Markets. The market is anticipated to have a 24.9% compound annual growth rate from 2023 to 2030, with key drivers being the increase of a vegan lifestyle, consumers becoming more health-conscious and environmental and ethical concerns.
Business model pros and cons
Turning now to the company's business model, I see several positive and negative factors to consider.
Starting with the positive, I see a strong focus on innovation, strategic partnerships, targeted marketing and sustainability.
The company is constantly innovating and developing new products that mimic the taste and texture of real meat. This has helped the company to stay ahead of the competition and attract new customers. Beyond Meat has strategic partnerships with many food service companies and retailers, which has helped to expand its reach and distribution channels.
Beyond Meat's marketing campaigns are targeted at consumers who are looking for healthier, more sustainable protein options. This has helped the company to build a strong brand identity and connect with its target audience. The alternative meat maker is committed to sustainability, and its products have a lower environmental impact than animal-based meat. This is a key selling point for many consumers who are concerned about the environment.
On the negative side, the cons of the business model include price competition, supply chain challenges and consumer preferences.
Beyond Meat's products are typically more expensive than animal-based meat. This limits market penetration into cost-conscious consumer groups. The plant-based protein market is becoming increasingly competitive, with major food companies and startups alike investing heavily in this space. This heightened competition can lead to pricing pressures, impacting profitability.
Further, supply chain challenges can lead to shortages and higher prices. This could impact Beyond Meat's ability to meet demand and grow its business.
One specific factor that is of very high risk for the company is a potential shift in consumer preferences. The demand for plant-based meat is growing, but it is still a small fraction of the overall meat market. If consumer preferences shift away from meat, Beyond Meat could benefit from this trend. However, if consume preferences shift back toward meat, it could struggle.
A look at fundamentals shows weak profitability and financial strength
The company has a GF Value of $67.82, signaling it is a possible value trap based on its historical ratios, past financial performance, and analysts' future earnings projections.
I think it is prudent to analyze Beyond Meat's very low profitability rank of 3 out of 10 and weak financial strength of 2 out of 10. The company has lost money over the past five years as its net losses have widened. In 2022, net income was -$366.14 million compared to a net loss of $182.11 million in 2021.
The company recorded massive revenue growth of 238.77% back in 2019, but has seen a slowdown since. In 2022, sales declined 9.85% to $418.93 million. It was the first negative figure for the period between 2018 and 2022. I find it very alarming that revenue per share has been in decline over the past three years, while the Piotroski F-Score of 2 out of 9 is low, which in most cases implies poor business operations, there is a total equity deficit for 2022 and the Altman Z-Score of -0.64 is in the distress zone.
Another major problem for Beyond Meat is that it has a negative free cash flow trend for the period between 2018 and 2022. Not being profitable and burning cash is a combination that, for me, is a no-brainer as it puts the stock at a very high risk.
The second-quarter 2023 results released on Aug. 7 showed a GAAP loss of 83 cents per share on revenue of $102.15 million. Both figures fell short of expectations.
Revenue decline and future projections
Year over year, the company recorded a 31% decline in revenue. In addition, even though the net loss for operating income and net income narrowed by 40% and 45% to -$53.8 million and -$53.5 million, Beyond Meat lowered its revenue guidance for 2023.
More specifically, the company now expects $360 million to $380 million in revenue for the year versus $375 million to $415 million previously. The gross profit margin is now expected to be in the mid-to-high single-digit percentage versus low double-digit percentage as per prior guidance.
Perhaps the most negative news was Beyond Meat said it is unlikely to be positive in the second half of the year, compared to its estimate it would achieve positive operating cash flow in the second half of the year as per its previous guidance in May.
Conclusion
Beyond Meat is still quite a way from being profitable, anticipates lower sales in 2023 and its core operations are not likely to generate positive cash flow this year. As such, I do not see any catalysts now to be positive on the stock as, overall, it was a disappointing quarter.
