Beyond Meat(NASDAQ: BYND), a leading producer of plant-based meat substitute products, went public on May 2, 2019, at $25 a share. Its stock closed at $65.75 on the first day and subsequently soared to an all-time high of $234.90 on July 26, 2019.
At its peak, Beyond Meat's market cap reached $14.1 billion, or 47 times the revenue it would actually generate in 2019. The bubbly valuation made an easy target for the bears as its growth cooled off and its losses widened. Rising interest rates exacerbated that pain by driving investors away from speculative growth stocks.
Today, Beyond Meat's shares trade at about $7, giving the company a market cap of $492 million. It clearly disappointed a lot of investors over the past five years, but could it more than double from these levels and become a $1 billion company again by 2025?
Image source: Beyond Meat.
Why did Beyond Meat's stock collapse?
When Beyond Meat went public, plenty of restaurants, retailers, and consumers were lining up to try its plant-based meat products. That's why its revenue surged 239% in 2019.
But in 2020, its revenue only rose 37% as many restaurants closed down during the pandemic, fewer retailers stocked up on its products, and cost-conscious consumers pivoted back toward cheaper animal-based meat products. At the time, the company optimistically expected its growth to accelerate again after the pandemic waned.
Unfortunately, Beyond Meat's revenue only climbed 14% in 2021 and its net loss more than tripled. In 2022, its revenue declined 10% and its net loss more than doubled. It didn't recover after the pandemic ended because inflation throttled its pricing power, many consumers stuck with animal-based meat products, and a growing number of competitors like Tyson and Impossible Foods carved up the shrinking market.
As a result, Beyond Meat's gross margin plummeted from 33.5% in 2019 to negative 5.7% in 2022 as it hastily liquidated its excess inventory. That decline was exacerbated by an ill-fated joint venture with PepsiCo to sell plant-based jerky, which generated dismal sales and further compressed its gross margin.
What's next for Beyond Meat?
In 2023, Beyond Meat's revenue dropped another 18% to $343 million and gross margin fell to negative 24.1%. However, it slightly narrowed its net loss from $366 million to $338 million after it laid off hundreds of employees and reduced its other operating expenses. It also narrowed its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss from $278 million to $269 million.
For 2024, Beyond Meat expects somewhere between an 8% decrease and a sub-1% gain in revenue, while analysts anticipate a 6% decline. However, the company believes gross margin will turn positive again for the full year and reach the "mid to high teens" as it consolidates its network and expands its in-house production capabilities. It also believes it can overcome its inventory and pricing issues as the macro environment improves.
Beyond Meat didn't provide an earnings outlook for 2024, but analysts expect it to narrow its adjusted EBITDA loss to $100 million and its net loss to $146 million. Those are certainly steps in the right direction, but it still ended the first quarter of 2024 with just $173.5 million in cash and equivalents and $1.1 billion in outstanding debt.
That debt inflates Beyond Meat's enterprise value to $1.56 billion, which is more than 3 times higher than its current market capitalization of $492 million. So if we only look at its market cap, Beyond Meat looks reasonably valued (but not a screaming bargain) at 1.5 times this year's sales. But if we look at its enterprise value, which is a more accurate measure of a company's value in a complete takeover, it looks significantly pricier at 4.8 times this year's sales.
Will Beyond Meat's market cap hit $1 billion by 2025?
In 2025, analysts expect Beyond Meat's revenue to finally rise 7% to $345 million as it narrows its adjusted EBITDA loss to $78 million. However, I would be skeptical of that outlook unless its revenue actually stabilizes on a sequential basis.
If inflation stays hot and consumers remain indifferent to plant-based meat products, Beyond Meat could continue to struggle to right-size its business. Even if it generates $345 million in revenue in 2025, it would need to trade at nearly 3 times sales to reach a $1 billion market cap again. I don't think that it can achieve that milestone within the next year, but its stock price could stabilize at these levels if its gross margin turns positive and it meaningfully narrows its net losses.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Beyond Meat. The Motley Fool has a disclosure policy.
