Beyond Meat has been treading water for the past six months, recording a small return of 2.6% while holding steady at $4.

Is there a buying opportunity in Beyond Meat, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Do We Think Beyond Meat Will Underperform?

We don't have much confidence in Beyond Meat. Here are three reasons why there are better opportunities than BYND and a stock we'd rather own.

1. Demand Slipping as Sales Volumes Decline

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

Beyond Meat’s average quarterly sales volumes have shrunk by 9.7% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable.

2. Cash Burn Ignites Concerns

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Beyond Meat’s demanding reinvestments have drained its resources over the last two years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 32.7%, meaning it lit $32.70 of cash on fire for every $100 in revenue.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Beyond Meat burned through $107.5 million of cash over the last year, and its $1.22 billion of debt exceeds the $103.2 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Beyond Meat’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Beyond Meat until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

Beyond Meat falls short of our quality standards. That said, the stock currently trades at $4 per share (or a forward price-to-sales ratio of 1×). The market typically values companies like Beyond Meat based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. Let us point you toward one of Charlie Munger’s all-time favorite businesses.

Stocks We Like More Than Beyond Meat

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