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Is Beyond Meat stock to be avoided?

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Beyond Meat is a US company that focuses on the production of plant-based meat substitutes. The outlook that this company is going through is not at all favorable and in fact, it seems to be negative. Very high expectations had been set for Beyond Meat and its development; however, their investment plan unleashed a disastrous evolution. 

Due to the financial problems that the company has had to go through recently, its shares fell by 70% in the last year.

Beyond Meat’s struggle

Shareholders have been getting off Beyond Meat’s boat because the company has had problems with its growth. Although they have had alliances with giant fast food chains such as McDonald’s, Pizza Hut, Taco Bell, and KFC, the results were not what they were expecting.

In the United States, sales of Beyond Meat products to restaurants were the hardest hit. They suffered a 30% year-over-year drop in the fourth quarter. 

The numbers against Beyond Meat are stark because its business has suffered from a lack of sustainable profitability. The company was forced to make price cuts in Q4 2022, so its gross margin stood at negative 3.7%.

The result of this is that Beyond Meat is losing on every burger it sells. In the fourth quarter alone, net losses were $66.9 million. As a result, in fiscal 2022, the company’s losses reached a horrifying $366.1 million.

Beyond Meat lost more money last year than it currently has in the bank.

The company’s CEO, Ethan Brown, spoke about this situation at a conference. “The fourth quarter of 2022 caps a difficult year for our business and our category, marked by persistently high inflation and reduced consumer sales of protein, the slowing economy in key markets, and increased competitive activity,” he said. “It seems reasonable that consumers would shy away from proteins that can cost 2x the price of their animal-based equivalent during periods of intense inflation and reduced purchasing power, and that a price reduction given these dynamics would spur greater consumption,” he added.

Competition and decreasing demand

Therein lies another of Beyond Meat’s problems. It turns out that the prices of the company’s products are unattractive to consumers. This is mainly because meat substitutes are more expensive to produce. The high price makes the public lose interest and opt to buy traditional meat products. Beyond Meat did apply certain price cuts, but prices are still too high for its potential customers. 

On top of that, the company has had another very strong headwind with the competition. Beyond Meat has gone up against the likes of Impossible Foods, Morningstar Farms, and Gardein to try to succeed in the plant-based meat market.

That task is far from easy because according to Information Resources Inc data cited by Bloomberg, volume sales of “fake meat” at retailers fell 10.5% in 2022 through Sept. 4. 

For Beyond Meat CEO Brown, the situation facing the plant-based meat industry in general, not just his company, can be boiled down to three main obstacles: taste, understanding the health benefits, and price. “I’m convinced that if we get the taste and health message right and lower the price barrier, the category will grow,” he said. 

What to expect from Beyond Meat?

Looking ahead, it will be several quarters before the company can address its excess inventory and reduce production levels to meet current demand. For all of 2023, specialists forecast losses of $3.53 per Beyond Meat share.

Although it seems very difficult, the company would have a recovery plan. At the end of 2022, there was a reduction in inventories and several factories were closed. In February, Ethan Brown told investors: “We are making solid progress in our transition to a sustainable growth model.”

Even though it would still be premature to make a statement at this point, investors can see a hint of progress in Beyond Meat’s gross profit, which improved to a 6% loss in the fourth quarter.

However, with a tight focus today, in light of the poor results and such an adverse scenario, Wall Street rates Beyond Meat shares with a “Moderate Sell” rating. At $11.50, the average outlook for its shares implies a downside potential of 23.6%.

If the company wants to stay in business, it will have to resort to new capital injections.

Do you think the company will survive? What changes would you make if you were in charge of Beyond Meat?

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(Information in this post is for general informational purposes only. It cannot and should not be considered as suggestions or recommendations regarding investing or financial decisions.)

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