If the business doesn’t get better this year, the stock’s rise might not last.
Beyond Meat (BYND 2.85%) stock has had a great start to the year, rising 35% so far. But that doesn’t make up for the 81% drop it took last year. As the plant-based meat company moves forward, there are a lot of risks because its finances aren’t great, and it hasn’t grown at all. In the first nine months of 2022, sales were down 7%. I have laid out what has to occur this year for Beyond Meat stock to continue rising and be a smart investment.
There needs to be a lot more money coming in.
Beyond Meat’s biggest problem right now is that its day-to-day operations aren’t making it any money. If a business isn’t making money, that means its operations can’t go on for long, and it will probably have to issue debt or sell more shares to keep going. And in the last few years, Beyond Meat has always been losing money.
When it released its third-quarter results in November, the food company said it expected its operations to have a positive cash flow in the second half of 2023. If it does that, it will be a great sign that the business is improving and moving in the right direction.
The gross margin of the company needs to be higher.
Beyond’s business isn’t making money and is running out of cash in large part because its gross margins aren’t high enough. When your gross margin is negative, you are selling your products at a loss. And that’s before you add in costs that aren’t related to production, like rent and utilities. That makes it impossible for a business to make money. Over the last three quarters, Beyond Meat has lost $299 million.
Beyond said that its negative gross profit in the last quarter, which ended on October 1, was due to underutilization and one-time termination fees related to manufacturing agreements. Its margins should get better, but the question is by how much and whether that will be enough for investors to think the company will be profitable and stay optimistic about its future.
There needs to be less inflation
The one thing Beyond Meat can’t do anything about is inflation, which is the worst thing for its business. CEO Ethan Brown said, “Record inflation still makes it hard for our brand and category.” Alternative meats like Beyond Meat’s are often priced a few dollars more per pound than ground beef. This makes it hard for the company to attract customers and grow.
There will be less demand for the company’s goods and services from price-conscious consumers in an environment of high inflation. As a result, the stock price can drop significantly.
Should you buy shares of Beyond Meat?
Investing in Beyond Meat at this time is high risk. Concerningly, it’s rising without any improvement in its financial situation being the primary driver. The consumer products stock might soon lose its gains if the company fails to show any evidence of progress when it reports earnings later this month. Since Beyond Meat has a lot to prove on the business side of things, I would wait to acquire the stock.