Is Beyond Meat now an “impossible” investment?

Is Beyond Meat now an “impossible” investment?

Beyond Meat (BYND), the plant-based alternative to meat company, released a weak earnings report Thursday and now the stock is down 33% year to date.

Does this present an opportunity for business-hungry traders to dig, or will buying now give investors indigestion later on? (And, what about those bonds?)

Let’s tackle the earnings first. The poor results were partly due to new competition and the fact that fewer US households than expected have started eating vegetarian alternatives to meat. Beyond Meat’s revenue of $ 147 million declined slightly year-over-year and losses were approximately $ 97 million. The gross profit margin stood at -4.2%.

As more competitors approach and the losses and debt for Beyond build, the shares are likely to trade lower. But Beyond started off well. Deals with fast food companies like McDonald’s (MCD), Taco Bell (YUM), Restaurant Brands International’s Tim Hortons (QSR) and PepsiCo (PEP), Beyond Meat had a critical head start. However, these opportunities have mostly failed. Dunkin ‘has ditched a plant-based offering, while Tim Hortons now offers Impossible sausage from Beyond’s strong competitor Impossible Foods. McDonald’s reportedly concluded its trial of the McPlant Burger at domestic locations after disappointing results as international trials are underway.

Beyond Meat has done a great job diversifying its products, but there is competition in most categories. Beyond once dominated Whole Foods’ (AMZN) plant-based meat section, but now it looks more like the yogurt section with offerings from numerous manufacturers.

The analyst community has already reasoned that the situation is irrecoverable. No company has a “Buy” for Beyond and 15 have “Hold” ratings, while six have “Sell” or “Underperform” ratings. The average price target is $ 25. Perhaps the bright side for the stock is that no one needs to be bearish. But, since Beyond is bleeding money and already has a rich valuation of 5 times the value / sales of the firm, there is little room for a contrarian to thrive.

Undoubtedly, Beyond Meat products benefit climate and animal welfare initiatives. Plant-based products are likely to become more popular, especially in a food chain stressed by more extreme weather conditions. Beyond’s offerings are “friends of the earth” compared to meat and dairy, although the benefits to shareholders are much more dubious.

Since going public in 2019, BYND has taken on a significant amount of $ 1.1 billion in debt to finance the losses. Beyond’s zero coupon convertible bonds maturing in 2027 are trading at 39 ยข on the dollar for a yield to maturity of more than 21%. Investors who believe in Beyond Meat’s financial survival over the next five years should consider these bonds instead of common stocks. If redeemed at par, the bonds will return over 150% by 2027. To conserve capital, the company plans layoffs and other cost-cutting measures to reduce operating expenses, but the company can still burn most of its cash. in the next six to eight quarters without an appreciable recovery in activity. Considering that the bond market for Beyond Meat is closed for the foreseeable future, the company will likely issue dilutive shares to cover future losses and strengthen its balance sheet.

A substantial 37.50% short-term interest in BYND stock can potentially keep the stock bullish for some time, especially in a market that has become more speculative. However, the stock is a sell on any strength. Ultimately, dilution and continued losses make the shares non-investable and beyond the toast.

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