Is Beyond Meat A Buy After Its Latest Earnings?
In the last 9 months I’ve written two separate articles telling you to avoid buying stock in vegan/vegetarian food company Beyond Meat to protect your retirement portfolio…
Today, I give an update after it released its latest quarterly earnings and answer – Is Beyond Meat A Buy After Its Latest Earnings
You can read the full articles above.
But if you don’t want to; here’s a quick recap of why I said to avoid it previously…
Should You Buy Beyond Meat?
Is Beyond Profitable?
Let’s do a quick rundown of Beyond’s profitability and cash flow. Because profits and cash flow drive the long-term value and pricing of a stock over time.
I measure this in part by looking at two important metrics.
Operating profits and free cash flow/sales (FCF/Sales).
On an operating profit basis Beyond’s produced an average operating profit margin of negative 64.6% per year on average every year over the last 4 years.
Normally I like to go back a decade and look at these numbers, or at minimum 5 years. But I can’t do either in Beyond’s case because of its IPO in 2018. And its financial numbers only go back to 2016.
I look for any company to produce above 10% margins on a consistent basis to consider as an investment.
And Beyond’s got negative margins in this case.
These numbers also fall well below my threshold of what I look for to consider for investment.
But it’s also not the full story…
In the full year of 2019 Beyond produced a positive 1.5% operating margin for the full year.
And in the trailing twelve-month period (TTM) it jumped further to 3.8%.
EDITORS NOTE – TTM is the last 12 months data going backward consecutively.
Most startup companies produce unprofitability for years after they IPO. But Beyond is already profitable on an operating profit basis.
While these more recent numbers still fall well below my minimum threshold to consider as an investment, they’re impressive for a startup…
And they’re only one set of numbers.
What about its FCF/Sales?
Over the last 4 years Beyond’s FCF/Sales is negative 92.9% per year.
And there’s no redeeming this. Its negative to a huge degree every year including the TTM period.
This means the company is far outspending its profitability.
Its normal for startup companies to do this to continue growing the business. But it’s also unsustainable over the long term.
If it continues Beyond will have to continually issue shares and debt just to keep the business running.
Since its IPO a little over a year ago its already issued 16 million new shares. This is an increase in share count of 34.8% in a little over a year.
This dilutes shareholders and lower the value per share of the company.
Think of this like a pizza.
When Beyond issues more shares, the same size of pizza stays… But more people are around to eat it.
If a company keeps doing this the same size of the pizza remains but you continually get to eat less and less of it due to more people being around.
Right now, it’s using equity to keep the business running and to grow it. Many startups and high growth companies do this to continue growing.
These are just a few names of businesses in the high growth arena who followed this same model to becoming the behemoths they are today.
And it can work for a while… But at some point, the company will need to generate higher operating profits and cash flow to grow the business in a healthier way that doesn’t harm current shareholders.
Beyond Is Massively Overvalued
As a conservative investor I want to recommend solid, safe, and relatively low risk investments to you.
Often those are achieved by high profit margins and low debt. But it’s also necessary to look at valuation too.
Because if you buy overvalued assets there is a lower margin of safety. Which means the investment is riskier.
I want to buy assets that are undervalued in a best-case scenario. And at worst fairly valued.
Unfortunately, Beyond falls into the overvalued category…
Its current forward P/E is 667.
And I can’t value it based on its current P/E or P/CF because both net income and cash flow are negative right now.
The forward P/E is sky high.
I look for companies to sell at ratios below 20 to consider the investment undervalued based on these metrics.
According to its current valuation its massively overvalued due to its low and negative profitability.
This is due to people buying its shares and speculating it will continue its rise higher due to the trend toward healthier eating.
I don’t recommend stocks based on speculation and hope.
Because of its low profits, negative cash flows, rampant speculation in its stock buying, and sky-high valuation I recommend you stay away from Beyond stock for now.
This thesis to avoid investing in Beyond Meat continued to play out after it released its most up to date quarterly earnings on November 9th, 2020.
Sales rose 2.7% in the year-to-year quarterly period to $94.4 million.
But it lost a lot more money on a net basis this quarter due to negative effects of the coronavirus.
Net income fell to negative $19.3 million in the year-to-year quarterly period compared to positive $4.1 million last year.
This fall in profits – combined with its huge overvaluation in July – sent shares falling 27.2% from their recent high of $194.95 per share on October 9th, 2020 to $141.84 per share as of this writing.
This illustrates why you need to be ultra careful when dealing with massive overvaluation.
One issue can send shares crashing.
This thesis to avoid Beyond Meat stock over the last two articles has continued to play out after it released its most up to date quarterly earnings on February 25th.
- Revenue rose 36.6% in the full year 2020 to $406.8 million.
- But the company posted a big $52.8 million net loss for the full year 2020 as well.
Beyond also announced major deals with both McDonald’s and YUM Brands – they own KFC, Taco Bell, Pizza Hut, and other restaurants – to bring Beyond’s vegan/vegetarian options to their locations.
In other words, Beyond reported mixed quarterly and yearly results… Some progress in terms of sales and partnerships… But still bad news in terms of profits.
Worse news though wasn’t reported on in the mainstream media…
Because of its unprofitability, it continued to issue more shares.
From 2019 to 2020 share count jumped 47.4% from 42.27 million to 62.29 million.
All else remaining equal this means its 2020 shares are worth 47.4% less just due to the dilution.
On top of this the company remains enormously overvalued too.
Its P/E is now 578.9.
And its other metrics are unreadable due to unprofitability.
Because of the share dilution, massive overvaluation, and mixed bag earnings I continue to recommend you avoid Beyond Meat stock.
There’s far too much risk in potentially buying it now due to the reasons above.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.