Beyond Meat (NASDAQ:BYND) shares have got 20% cheaper this week after the veggie burger-maker reported earnings that missed analysts’ estimates by a big margin.
This pullback came after a powerful rally that pushed Beyond Meat shares more than 155% higher this year. But investors were quick to punish BYND on signs that the pandemic-driven stockpiling was slowing, and the operating environment for restaurants remains challenging.
By the end of Wednesday trading, shares in Beyond Meat were down more than 20% for the week and 35% from its Oct. 5 high. The shares closed at $127.89 on the day.
The El Segundo, California-based company reported on Monday that its sales rose just 2.7% in the third quarter to $94.4 million, much lower than the $132.1 million average of analyst estimates. The company also reported a net loss of $0.28 a share, after excluding some items. Analysts had projected a profit of $0.05. Beyond Meat President and CEO Ethan Brown said in the earnings statement:
"Our financial results reflect a quarter where for the first time since the pandemic began, we experienced the full brunt and unpredictability of COVID-19 on our net revenues.”
The latest weakness in sales comes after many positive developments that allowed BYND to rapidly gain market share at a time when consumers are increasingly purchasing plant-based products that have the look and taste of meat.
Beyond Meat also successfully adjusted its business strategy during the pandemic by increasing sales through stores after restaurants, which had accounted for about half of the company’s sales, saw their sales drop.
While there’s been some recovery in restaurant demand during summer, the company says it was still unable to provide guidance for the year.
Multiple Downgrades
Analysts, on the other hand, are becoming concerned about the demand outlook as the market for plant-based meat becomes more competitive and restaurants go through an uncertain period as the pandemic rages on. The selloff in BYND stock accelerated after it faced multiple downgrades this week from analysts who predict the company might see more earnings volatility.
Bernstein analyst Alexia Howard found the quarterly earnings “even more depressed” than anticipated, rating the stock underperform and slashing her price target to $89 per share from $136, citing a “tougher-than-expected outlook for the next few quarters.”
Adam Samuelson, an analyst at Goldman Sachs who rates Beyond Meat a sell, wrote in a note that “COVID is delaying incremental menu innovation at food-service operators that can slow trial, and household penetration,” tempering the near- to medium-term growth trajectory for Beyond Meat.
Despite the earnings disappointment, the company continues to build its relationship with some of the top fast-food chains. It collaborated with McDonald’s Corporation (NYSE:MCD) in the creation of the plant-based McPlant, which the fast-food giant plans to test in several markets next year. With these partnerships, BYND is continuing to invest in factories in Europe and China, plus the next iteration of the Beyond Burger, even during this period of disruption. Brown said in a statement:
“Rather than curtail activities in reaction to transitory macroeconomic conditions, we continue to invest in the pillars of our future growth, and in capabilities, infrastructure, and markets that support our global vision.”
Bottom Line
The latest pullback in Beyond Meat stock makes sense, given the disruption that the pandemic has caused in the restaurant business and in consumer buying patterns. But after this weakness, the stock price has become more acceptable for long-term investors who are keen to add a quality growth stock to their portfolios. Beyond Meat’s partnership with global brands and its global growth plans make it an attractive food name to own after the current spell of weakness.