Beyond Meat (NASDAQ:BYND), a prominent player in the plant-based meat sector, is facing recent turbulence. The shares of BYND, a company with a current market cap of $779.71 million, have experienced a significant drop of nearly 29% over the past month. This decline stands in stark contrast to the Nasdaq Composite’s ($NASX) minor 2.5% dip during the same timeframe.
Analyzing Beyond Meat’s Recent Stock Decline
A combination of factors has led to Beyond Meat’s recent challenges. Notably, an earnings report that received a poor reception in early August played a role in the stock’s downward movement.
During the second quarter, the company reported net revenues of $102.1 million, marking a 30.5% decline compared to the previous year. This figure fell short of the estimated consensus of $108.4 million. Over the past five quarters, Beyond Meat managed to achieve net revenue growth only once, which was in Q1 2023.
This decline in revenue can be attributed to decreased demand for the company’s products and the ongoing high inflation environment. The company reported a 23.9% year-over-year reduction in product volume sold and an 8.6% decrease in net revenue per pound.
Of particular note, the U.S. market, responsible for nearly 60% of the total net revenues for the quarter, experienced an even steeper decline. Revenues in this market dropped by 40.1% from the previous year to $61.2 million.
Despite these challenges, the company managed to significantly reduce its losses by approximately 46% compared to the previous year, with a loss of $0.83 per share. This surpassed the consensus expectation of a $0.84 per share loss. Efficient cost management played a crucial role in this improvement, as operating expenses decreased by 33% from the previous year to $56 million, mainly due to a substantial drop in selling, general, and administrative expenses.
It’s noteworthy that Beyond Meat’s losses have often been narrower than anticipated in recent quarters. However, the company still faces negative free cash flow, with a cash outflow of $88.34 million in operating activities during Q2 2023. Additionally, long-term debt increased by 2% from the beginning of the year to $1.2 billion.
Challenges in Consumer Demand
Beyond operational issues, a broader trend that might impact Beyond Meat’s performance relates to shifting consumer preferences and consumption patterns concerning meat alternatives. A Deloitte industry report from September 2022 highlighted stagnation in plant-based meat sales, with consumer perceptions shifting less favorably. The data indicated that fewer consumers viewed plant-based meat substitutes as healthier, more environmentally friendly, and worth a premium compared to 2021.
Considering Beyond Meat’s potential growth in international markets, the prevalence of traditional meat consumption globally could limit its expansion. According to a Statista Consumer Insights Report, 86% of respondents from 21 surveyed countries reported including meat in their daily diets.
The Potential Impact of High Short Interest on Stock Movement
Given Beyond Meat’s history of underperformance and limited operational diversity, it’s not surprising that short sellers have targeted the stock for further decline. Short sellers borrow shares with the expectation of repurchasing them at lower prices post-decline. The difference between the lower repurchase price and the initial borrowing price constitutes their profit.
Currently, the short float for BYND stands at a substantial 35.58%. This places it as the third most heavily shorted stock on the Nasdaq ($NASX), trailing Novavax (NVAX) and Edible Garden (EDBL).
This situation puts BYND at risk of a “short squeeze.” Such a scenario unfolds when positive news or another catalyst prompts a wave of short sellers to cover their positions through buying, leading to increased demand for the stock. This demand can force additional short sellers to cover, intensifying the upward momentum and potentially leading to a sharp rally.
Analyst Predictions
Analysts expect Beyond Meat to make progress in reducing its losses. Forecasts indicate a 47.5% improvement in current-quarter earnings and an overall 40.4% increase for FY 2023.
However, analysts remain cautiously pessimistic about Beyond Meat’s performance, with a consensus “Moderate Sell” rating. Among the 12 analysts covering the stock, 6 suggest a “Hold” rating, 1 suggests a “Moderate Sell,” and 5 recommend a “Strong Sell.”
Conclusion
In Summary, While it might seem that Beyond Meat is set for continued decline in the short term, investors should exercise caution before joining the crowd in shorting the stock. The stock’s recent recovery from an oversold state following the earnings-related drop suggests a potential for a rebound. Despite the operational challenges, the stock’s high susceptibility to a short squeeze—due to its appeal to short sellers—adds an unusual element of potential upward movement to the equation.
Featured Image: Unsplash @ abillion
Author Faith Yakubu