Is Beyond Meat now an ‘impossible’ investment?

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

Does this create an opportunity for bargain-hungry traders to go deeper, or will buying now lead to investor indigestion later? (And what about those bonds?)

Let’s deal with revenue first. The poor results are due in part to new competition and because fewer American households than expected have started eating vegetarian alternatives to meat. Beyond Meat’s revenue of $147 million was down slightly from a year earlier, and losses were around $97 million. The gross profit margin was -4.2%.

As competitors grow and Beyond’s losses and debt mount, the stock is likely to trade lower. But Beyond started well. By striking deals with fast-food corporations like McDonald’s ( MCD ), Taco Bell ( YUM ), Restaurant Brands International’s ( QSR ) Tim Hortons ( QSR ), and PepsiCo ( PEP ), Beyond Meat had a critical early advantage. Yet these opportunities have mostly failed. Dunkin’ dropped a plant-based offering, while Tim Hortons now offers Impossible sausages from Beyond’s strong competitor, Impossible Foods. McDonald’s has reportedly ended a trial of the McPlant Burger at domestic locations after disappointing results as international trials continue.

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

The analyst community is already reasoning that the situation is beyond repair. No firms have a Buy rating on Beyond, and 15 have a Hold rating, while six have a Sell or Underperform rating. The average target price is $25. Perhaps the good lining for stocks is that no one is left to be bearish. But with Beyond hemorrhaging money and already a rich valuation of 5x enterprise value/sales, there’s little room for a contrarian to prosper.

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

Since going public in 2019, BYND has taken on a significant amount of $1.1 billion in debt to finance losses. Beyond’s zero-coupon convertible bonds due 2027 are trading at 39ยข 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 over common stock. If bought back at par, the bonds would return more than 150% by 2027. To conserve capital, the company is planning layoffs and other cost-cutting measures to lower operating costs, but the company could still burn the larger some of its money over the next six to eight quarters with no tangible uptick in business. Given that the bond market is closed for Beyond Meat for the foreseeable future, the company will likely issue discounted stock to cover future losses and shore up its balance sheet.

Significant short interest of 37.50% in BYND stock could potentially keep the stock up for some time, especially in a market that has become more speculative. Yet stocks sell regardless of strength. Ultimately, dilution and continued losses make the stock uninvestable and unviable.

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