The Beyond Meat (NASDAQ:BYND) share price is down over 10% this week. Even with the US (and UK) markets selling off this week, the move in the company’s share price has been large. When any stock drops by more than 10% within the space of a few days, I’m always interested to take a closer look. Sometimes it’s the case that the sell-off has been exaggerated, making the stock a discounted buy.
The backstory
Beyond Meat is a US-based meat alternative producer. As the name suggests, it goes beyond meat and uses plant-based substitutes to make products that look like sausages and burger patties.
The company was only formed 12 years ago, but has enjoyed strong success that led it to go public back in 2019. Since then, the Beyond Meat share price has seen high volatility, but trades higher than the IPO price at present. Announcements regarding partnerships with the likes of Pepsi and McDonald’s caused recent spikes in 2021.
That being said, what’s been going on recently to cause a slump? One of the main factors was the Q1 results that were released. Net revenues were up 11.4%, and the company posted a gross profit of $32.7m. Unfortunately, high indirect expenses meant that it posted a net loss of $27.3m for the period. With revenues of only $108.2m, this is quite a large loss. This size of loss is one reason why I think the Beyond Meat share price has fallen so much this week.
My outlook for the Beyond Meat share price
At a broader level, the Beyond Meat share price has struggled due to the size of the company’s debt levels. It currently has total outstanding debt of $1.1bn. Again, when I compare this to quarterly revenues of around $100m, this is a large debt pile.
This matters at the moment because there is concern in the market about rising inflation expectations. Rising inflation could mean raising interest rates in the US. This hurts companies with high debt levels. The higher the interest rate, the more expensive it is for companies to borrow.
I definitely think this factor is weighing on the Beyond Meat share price.
I personally wouldn’t look to invest in the company at the moment. I think the outlook is quite uncertain. The latest update speaks of “significantly reduced demand in its foodservice channel (via) decreased foot traffic, streamlined menu offerings, and restrictions on foodservice locations’ capacity”.
Even with consumption aided by cooking at home, I think the meat alternative offering is still not mass market. I don’t think the company has reached enough scale to rely on the existing customer base to drive revenue. The pandemic has further stunted growth, so I think it’ll take a long time before it becomes an attractive investment.
I could be wrong, and one element in favour of the Beyond Meat share price is the growing movement around the environment and veganism. If this trend continues to grow, the company could benefit.
Overall, I think the slump in the share price this week is justified, and would look elsewhere for a better buy.
