Beyond Meat (NASDAQ:BYND), one of the global leaders in plant-based meat, has been having a difficult time recently. Beyond Meat stock, which has a market worth of $779.71 million, has fallen by over 29% in the last month alone. This is a significant underperformance when compared to the Nasdaq Composite’s ($NASX) 2.5% loss during the same time period.
Why Is Beyond Meat Stock Sliding?
Second-quarter results: While the company has been a long-term underperformer, one factor that contributed to the latest decline in BYND was a badly received earnings release in early August.
Net revenues for the second quarter were $102.1 million, down 30.5% year on year and falling short of the consensus estimate of $108.4 million. In reality, BYND has only reported net sales increase once in the last five quarters (Q1 2023).
Revenues are dropping due to a decline in demand for the company’s products and a persistently high-inflation environment. Beyond Meat reported a 23.9% decrease in product volume sold and an 8.6% decrease in net revenue per pound year over year.
Revenues in the United States, which accounted for over 60% of total net revenues for the quarter, plummeted even more severely, down 40.1% year on year to $61.2 million.
However, the corporation reduced its losses by around 46% from the previous year to $0.83 per share, just exceeding the average forecast of $0.84 per share. Here, the company’s effective cost-cutting tactics paid off, as operational expenses fell 33% from the previous year to $56 million, owing to a significant decrease in marketing, general, and administrative charges.
Notably, BYND’s bottom-line losses have been less than projections on three occasions in the last four quarters – but the company is not free cash flow positive, with an operational cash outflow of $88.34 million in Q2 2023. Furthermore, long-term debt increased by 2% year on year to $1.2 billion.
Customer Demand Headwinds: Aside from its operational KPIs, a broader market trend that could be a bigger concern for Beyond Meat is the general shift in customer behavior and consumption patterns toward meat-replacement products.
Notably, a Deloitte industry survey from September 2022 revealed stagnant sales for plant-based meats overall, as customer attitudes generally shifted less positively. In 2022, fewer customers perceived plant-based meat alternatives as healthier, more environmentally sustainable, and deserving of a premium price than in 2021.
Beyond Meat’s growth potential in international markets may also be limited, given traditional meat consumption remains widespread around the world. According to a Statista Consumer Insights Report, 86% of the 21 countries examined claimed that meat was part of their regular diet.
High short-term interest rates may cause the stock to surge unexpectedly. Given the company’s lack of operational variety and long-term share price underperformance, it’s not unexpected that short sellers have targeted Beyond Meat for additional downside. Short sellers borrow shares (usually from an institutional lender) with the intention of repurchasing them at a cheaper price after the market falls. Shorts then return the borrowed shares at the lower price, pocketing the difference as profit.
BYND’s current short float is a staggering 35.58%. It is now the third most widely shorted company on the Nasdaq ($NASX), after only Novavax (NASDAQ:NVAX) and Edible Garden (NASDAQ:EDBL).
This means that BYND is extremely vulnerable to a “short squeeze.” When a favorable headline or other upside event encourages widespread short covering, the increased buying prompts other short sellers to cover their own positions in order to lock in profits or limit prospective losses. Short squeeze rallies can be quick and sharp, and they can linger for a long time as more and more shorts succumb to the upside “squeeze.”
Analyst Predictions
Analysts are still confident in Beyond Meat’s potential to reduce its bottom-line losses. Wall Street anticipates a 47.5% increase in current-quarter earnings and a 40.4% gain overall for fiscal year 2023.
Analysts, on the other hand, remain pessimistic about Beyond Meat stock, with a consensus rating of “Moderate Sell” from the group. Six analysts have a “Hold” recommendation on the stock, one has a “Moderate Sell” rating, and five have a “Strong Sell” rating.
Last but not Least
While the stock may appear to be an obvious candidate to continue sliding on the charts in the near term, investors should exercise caution before jumping on the bandwagon to short Beyond Meat, especially when the company recovers from a momentary oversold state following its earnings-related slide. Although the operational obstacles are substantial, the potential of a short-squeeze rally is extremely strong for BYND as long as the stock remains a worldwide favorite target of short sellers.
Featured Image: Unsplash @ abillion
