So, what’s going on here? And has the share price weakness presented an attractive buying opportunity for me?

Why has Beyond Meat stock tanked?

The main reason Beyond Meat shares have fallen recently is that the company’s growth has stalled, and profitability has declined.

This is illustrated by its recent second-quarter results. For the period, net revenue was $147m. This was below the figure of $149.4m generated a year earlier and also below the consensus forecast of $149.2m. Loss from operations came in at $97.1m versus $19.7m a year earlier.

Looking ahead, the company lowered its 2022 revenue forecast to between $470m and $520m (versus $465m last year). Previously, it had projected full-year revenue of $560m to $620m.

As for why the company’s growth has stalled, it comes down to lower demand for its products due to consumers’ budgets. Right now, many consumers are struggling due to high energy costs. As a result, they are trading down to cheaper products. Beyond Meat’s burgers are quite expensive, so it is feeling the impact of this shift.

Is this a buying opportunity?

Are Beyond Meat shares worth buying for my portfolio at $33 a pop? I’m not convinced they are.

Sure, the company’s valuation is a lot more reasonable after the recent share price fall. At present, Beyond Meat has a market cap of just $2.1bn. If the company can generate sales of $500m this year, the forward-looking price-to-sales ratio is only around four.

Yet I think there’s still risk to the downside.

One thing that concerns me here is that demand for plant-based meat appears to be fizzling out. According to data from NielsenIQ, total sales of meat alternatives in the US rose just 0.3% year on year for the 52 weeks to 28 May. Meanwhile, McDonald’s, which has trialled a ‘McPlant’ burger in the US (made with Beyond Meat patties), recently said that it won’t be rolling out these burgers nationally this year due to the fact that sales have not met projections.

Another issue is the rising level of competition in the plant-based meat space. With more competitors now on the scene, Beyond Meat doesn’t really have the capacity to increase its prices. This means it could be hurt by inflation. It’s worth noting that analysts expect the group to post a net loss of $332m this year, nearly double the net loss of $182m posted last year.

A third issue for me is the fact that the stock has a very high level of short interest. At present, about 24.4m Beyond Meat shares are on loan (roughly 40% of the free float). This tells me that hedge funds and other sophisticated investors expect the stock to fall.

Given the uncertainty here, I won’t be buying Beyond Meat shares for my portfolio. To my mind, there are much better growth stocks I could buy today.

70% revenue growth

MercadoLibre (NASDAQ: MELI) has impressed me repeatedly to the extent that it now makes up the second largest position in my portfolio. But while the MercadoLibre share price has managed to rise 24% over the last year, it has fallen over 13% over the past three months. I feel this dip makes this an excellent time to buy.

For one, the Latin American e-commerce company is seeing huge growth rates. This was shown in its recent Q3 trading update, where it recorded net revenues of $1.9bn, a 73% year-on-year rise. The company also maintained its profitability, reaching net income of over $95m, significantly higher than the $15m recorded in the same period last year. While this still places the company on a very high price-to-earnings ratio of over 200, the firm is prioritising growth over profits, and therefore, I expect that profits are likely to continue rising over the next few years. This is a very good sign in any growth stock.

I’m also impressed by the company’s diverse revenue streams. Indeed, while the bulk of revenues come from the e-commerce business, MercadoLibre has a growing fintech service, known as Mercado Pago. In the third quarter, fintech revenues increased over 60% year-on-year to reach $632m. This should continue to supplement the very successful e-commerce business. I feel that this helps differentiate MercadoLibre from other e-commerce companies.

There are risks with it, however. For example, with a price-to-sales ratio of over 12, the stock isn’t cheap, and high growth is already factored in. The high rate of inflation will also cause issues, especially as MercadoLibre has a lot of debt. Despite these issues, its potential is too difficult to ignore, and therefore, I may buy more.

A ‘growth’ stock with limited growth

The Beyond Meat (NASDAQ: BYND) share price has suffered considerably over the past year, falling 33%. This has mainly been due to a series of disappointing trading updates. For example, in the recent Q3 update, it posted revenues of $106.4m, just a 13% rise from the same period last year. Gross profit margins also decreased from 27% to 21.6%, primarily due to increased transportation costs and higher warehousing costs. This also led to a larger-than-expected loss of $54.8m.

This had led to fears from some analysts that the company is “reaching market saturation faster than expected”. This isn’t a good sign for any growth stock. It also led to several brokers cutting their price targets for the stock. In fact, JP Morgan has recently implied that it has a 36% downside. 

Of course, there’s potential that the stock can rebound. This is especially true given that the global market for plant-based foods could see fivefold growth by 2030. But at the moment, Beyond Meat seems to be falling behind competitors. Therefore, I’ll wait for a further dip, or a change in the company’s fortunes before buying.

So why did Beyond Meat’s share price plummet yesterday? And has the share price weakness created a buying opportunity for me?

Why Beyond Meat’s share price just crashed

The reason the BYND share price fell yesterday was that the company’s third-quarter 2021 results, posted on Wednesday night, were very disappointing and missed Wall Street’s estimates.

For the quarter, the company posted revenue of $106.4m, which was below analysts’ forecast of $109.2m, and well below Q2 revenue of $149.4m. Meanwhile, the adjusted loss for the quarter came in at 87 cents per share, which was far higher than the consensus forecast of 39 cents per share.

However, what really spooked the market was the outlook. Here, Beyond Meat advised that for the fourth quarter of 2021, it expects net revenue in the range of $85m-$110m. This was miles below the consensus forecast of $132m.

Looking ahead, the company said its operating environment continues to be affected by near-term uncertainty related to Covid-19 (consumer behaviours are quite hard to predict right now) as well as labour availability and supply chain disruptions.

On the back of these Q3 results – which one analyst described as “disastrous” – a number of brokers cut their price targets for the stock. One such broker was JP Morgan, which cut its target price to $54 from $79. Another was Credit Suisse, which went from $70 to $65.

“We view the results as further evidence that Beyond’s business is reaching market saturation faster than expected and that the company has deeper problems that won’t be easy to fix,” wrote Credit Suisse analyst Robert Moskow.

Should I buy BYND stock now?

I’m quite bullish on the prospects for the plant-based meat industry as a whole. According to Markets and Markets, this industry is set to be worth $8.3bn by 2025, up from $4.3bn last year. That represents annualised growth of 14%. That kind of industry growth is likely to generate plenty of returns for long-term investors like myself. And BYND could be huge beneficiary.

Yet I’m not convinced that investing in Beyond Meat stock is the best way to capitalise on the growth of the industry. One concern I have here is the level of competition the company faces. Today, there are now lots of brands offering similar products including the likes of Meatless Farm, Future Burger, Naked Glory, The Vegetarian Butcher and Vivera.

Does Beyond Meat have a genuine competitive advantage over these kinds of companies? I’m not sure it does. Without a competitive advantage, these other companies could capture market share.

Another concern I have is the high level of short interest here. Currently, Beyond Meat has short interest of around 35% which is extremely high. This indicates that a lot of institutions are betting against the stock.

So while the BYND share price has fallen a long way recently, I’m not tempted to step in and buy the stock just yet. To my mind, it’s too risky.

Given that many growth companies are absolutely on fire right now, I think there are much better stocks to buy today. 

The social media giant

Facebook (NASDAQ: FB) has seen its value soar over the past few years, rising 750% from its IPO in 2012. But sentiment has dampened recently, with the stock falling around 16% since the start of September. This has been due to a flurry of bad news including advertising issues and a whistleblower accusing the company of placing profit before people’s safety. This has dampened investor optimism.

There’s also a risk that this will lead to decreased profits when the company reports its Q3 earnings this evening. Indeed, due to privacy changes introduced by Apple recently, which have allowed iPhone users to opt out of apps tracking their web activity and preventing targeted advertising, there’s the risk that some companies will avoid advertising via Facebook. These new privacy moves contributed to the 26% fall by Snap on Friday, as they hit revenues. This also saw the Facebook share price drop 6% on the day.

But while this risk should be considered, I feel that the benefits of this growth stock are too great to ignore. In fact, the company has managed to grow annual revenue by at least 20% each year, and despite the issues posed by the pandemic, there has been no evidence of this growth slowing down. In fact, in the previous quarter, Facebook reported revenue growth of 56% and an increase of 101% in net income.

Companies are also returning to more advertising, after being slightly subdued during the pandemic. Facebook is seen as a major beneficiary of this, and this could help increase profits even more for the future. As such, I’m very tempted to buy this growth stock.

A growth stock to avoid?

Beyond Meat (NASDAQ: BYND) has several positives, especially that it’s operating in a high-growth market, and it has managed to grow revenues from $32m in 2017 to $407m last year. But there are also several factors that deter me from this growth stock.

For example, on Friday, the shares fell by 14% due to the company cutting Q3 revenue guidance to $106m, down from around $130m. This was due to the large number of coronavirus cases, labour shortages and operational challenges. For me, this demonstrates that the company struggles in the face of headwinds, something I don’t like in a growing company.

Further, I worry about the competition that Beyond Meat faces. This includes Impossible Foods, which has been increasing its retail presence through price cuts for shoppers. Unfortunately for Beyond Meat, this has decreased its market share, and may potentially decrease margins as well. These are worries that are keeping me away from this stock.

Since August a year ago, Beyond Meat stock has lurched between rapid spikes taking it up 50%, and slumps taking it into negative territory, as deep as minus 20%. At the time of writing, we’re looking at a 12-month decline of 4%. I know potential growth stocks often show multiple rises and falls in their early years, but this is getting close to high-blood-pressure territory.

Anyway, from a peak of $240 not long after IPO in 2019, the price is now down 50%. But I feel anything could have happened between my writing and your reading these words!

But what is Beyond Meat, and why the excitement? To say it makes plant-based burgers would not be giving it full credit. It’s actually the world’s biggest plant-based meat substitute company. Fake meat in burgers and sausages is nothing new. But apparently it’s getting more realistic these days. And a number of trends are coming together to make the market look especially attractive.

Vegan fast food

For reasons ranging from increasing health awareness, to reducing the effects of bovine flatulence on climate change, meat consumption is becoming increasingly undesirable. Then there’s the enormous and growing fast food market.

On that front, Beyond Meat has a deal with McDonald’s, as well as other outlets. I have to say that “Good enough for McDonald’s” wouldn’t get me rushing out to buy the stuff, especially not at £4.40 for two burgers at Tesco. But I’m not the target market, and I’m sure prices will come down due to research and economies of scale.

So yes, I do think the future demand is likely to be there. But the one thing above all else that holds me back is valuation. Without being able to get a handle on that, I can’t work out a fair level for the Beyond Meat share price. And judging by the price chart to date, nobody else can either.

The company’s Q1 earnings report revealed an 11.4% rise in revenue to a bit over $108m. That’s impressive, but the bottom line showed a net loss of $27.3m. And there’s big debt on the books, to the tune of $1.1bn.

Beyond Meat share price threat?

I can see another potential downside in the shape of competition. And that (especially price competition) could be particularly dangerous: until Beyond Meat gets its economies going, its prices competitive with meat, and it’s business generating sustainable profits, at least.

Saying all that, estimates suggest the global meat substitute market could be worth $7.5bn by 2025. My gut feeling is that the Beyond Meat share price might turn out to be a bargain buy at the moment, even if the burgers aren’t yet. Still, I don’t invest on gut feelings. And I don’t buy loss-making companies with huge debts.

So it’s not for me, not now. But I’ll be watching carefully. Oh, and I reckon anything could happen on Q2 earnings day.

Why Beyond Meat?

Beyond Meat has potential because of its position of strength in this changing world. In the US, 2% of people identify as vegan, and 39% of people incorporate vegan products into their everyday diets. The market for vegan meat alternatives is expected to jump to $7.5bn globally by 2025. In a BBC interview with CEO Ethan Brown yesterday, he stated that “93% of the people that are putting the Beyond burger in their cart are also putting animal protein in.”

This shows that many people now want to reduce their consumption of meat. This can be because they want to limit their impact on the climate, improve their health, or because they are becoming increasingly uncomfortable with the realities of factory farming. 

Beyond Meat’s numbers are positive. It has total assets of $1.5bn for FY 2021 Q1, an increase of 185% compared to FY 2020 Q2. Even with the weakening effect of the pandemic, it reported revenue of $108.2m, only a 4.5% decrease compared to FY 2020 Q2. With the hospitality sector reopening worldwide, the company predicted in Q1 that revenue could soar by at least 19% in Q2.

Tackling the risks

I think what’s holding back large scale consumption is the high cost of plant-based meat. Tesco currently sells two Beyond Meat burgers for £4.40, while two comparable beef burgers cost £1.25. However, as the company grows, economics of scale should start to bring the price down. In February, it signed a three-year global deal with multiple fast food outlets including McDonalds, bringing plant-based meat further into mainstream consciousness. 

Across the developed world, there is a consensus that meat eating needs to be reduced to tackle climate change. I speculate that special taxes on meat could be in the pipeline, much like there are taxes on alcohol, tobacco, and sugar. To make a Beyond Meat burger, the company uses 99% less water, 90% less CO2, and 93% less land than is needed to make an equivalent beef burger. If taxes rise to cover the environmental cost of animal protein, plant-based meat could also become the more economical choice.

I only invest in things I feel I understand. As an unashamed meat eater, I barbecued a couple of Beyond Meat burgers yesterday. Subjectively, they were fairly close to the real thing.

There are risks though. The company has multiple competitors, such as Impossible Foods, which has recently taken market share by slashing their prices earlier this year. Beyond Meat could run into trouble if their competition catches up to them before they have expanded fast enough to benefit from economies of scale. Their profit margins are also coming under pressure from increased warehousing, transport, and ingredient costs.

However, McDonalds believes in the company’s future. That’s good enough for me.

Recent trading update

The recent trading update was poorer than many had expected, with the company posting a net loss of $27.3 million. Although revenues rose 11.4% year-on-year, this was also lower than analyst’s expectations. All in all, this fairly substandard trading update caused Beyond Meat stock to fall 6% on the day.

Nonetheless, I saw this dip as an opportunity to buy. Indeed, when analysing where the loss came from, a lot of it was attributable to the development of the company, which includes international and product development. This has included the launch of many new and improved products. I am hopeful that this will pay off in the long term, leading to increased revenues and healthy profits.

The trading update also pointed to Covid-19 pressure on the foodservice business, mainly due to a lack of restaurant customers. With normality starting to resume around much of the world, I feel that this is a short-term problem. As such, I am hopeful that the next trading update will be much brighter, and that there is significant upside potential for Beyond Meat stock.

Other considerations

Yet I still have concerns about Beyond Meat, such as the rising competition within the meat substitute market. Indeed, one of its rivals, Impossible Foods, has been cutting prices recently. This has helped it gain market share at the expense of Beyond Meat. Traditional meat companies such as Tyson have also introduced their own meat-free alternatives. Such competition can strain profit margins, which is a problem for Beyond Meat as it may also have to lower prices.

Nonetheless, although this is one of my main worries, it has not deterred me from buying Beyond Meat stock. In fact, such competition simply demonstrates that the plant-based protein market is extremely healthy. This market should continue growing as consumers become more environmentally and health-conscious. As shown by the strong IPO from Oatly yesterday, investors are interested in companies that offer alternatives to traditional animal products.

While there may be increased competition, it does seem that Beyond Meat is still a market leader. Indeed, according to the latest SPINS and NPD data, Beyond Meat is the number one selling plant-based meat brand in the refrigerated category at US grocery stores and across US total foodservice. The company is also increasing its international presence, especially with a larger focus on Europe. As such, I believe that Beyond Meat stock is in a strong position to make large gains over the next few years. This is the reason why I have recently bought the stock.

It wasn’t just the global pandemic that did the damage. No, Beyond Meat shares had been sliding for months before the Covid-19 virus showed up. I expect most ‘new idea’ stocks to soar, tank, and gyrate for a while. Investor sentiment does seem to be volatile when it comes to new growth stocks. And in their early days, before we have stable profits from which to judge, it’s notoriously hard to put a rational valuation on such companies.

Anyway, we’ve now had a year of reasonable buoyancy, with a couple of short-lived spikes along the way. But after the most recent peak at the end of January, the Beyond Meat share price has been in a big slump again. Since a high of $221, the shares have lost 52% of their value to stand at $104. That makes Beyond Meat look attractive to me, though we still don’t have sustainable profits yet.

Strong long-term demand?

I do see some indications of a possible healthy long-term future. And I think the pandemic might even have helped. Despite the lockdowns and the drag they’ve put on so many businesses, Beyond Meat’s most recent figures show an 11.4% rise in revenue — to a little over $108m in the first quarter.

What might the pandemic have to do with anything? Well, I think it’s helped focus minds on various aspects of environmental threats (even if the coronavirus is totally natural). Even BP thought the depths of the slowdown created the best opportunity for launching its carbon net zero plans. I definitely think I’m seeing an upsurge of interest in so-called green investing. But why the latest slump in the Beyond Meat share price?

The growth in revenue might look good, but the quarter still ended with a net loss of $27.3m. And I see other financial pressure on the stock too. The company’s expansion, which includes investments in production facilities in the US, EU, and China, has helped build up a sizeable amount of debt, to approximately $1.1bn. It’ll take a huge amount of growth in today’s relatively modest revenue levels to make that look manageable. Oh, and some sustainable bottom-line profits too.

More Beyond Meat share price volatility?

So will I buy? Despite my dislike for debt, the Beyond Meat share price is definitely on my watchlist. I suspect we’ll see a fair bit more volatility in the coming months. And the shares might well climb again in the relatively short term. Then again, I wouldn’t be at all surprised to see future falls too, and perhaps attractive buying opportunities.

I do think there’s a potentially huge market for meat alternatives out there, especially in burger and sausage munching countries. I’ll keep watching until I get a clearer idea of how the financial picture is developing.

Profits poised to flow

The growing importance of responsible water usage makes Water Intelligence (LSE: WATR) a great UK share for the next decade, I feel. Why? The company is involved in the detection, finding and fixing water leaks for residential, commercial and municipal customers. And boy is business booming. Revenues here rose 38% in the three months to March. I expect demand for its services to keep booming as the climate crisis worsens too.

The rise of responsible investing is turbocharging demand for so-called ethical investments like Water Intelligence shares. According to Close Brothers Asset Management, a hefty 65% of 2,000 investors it surveyed said that they “prioritise responsible investing over a desire to ‘simply maximise’ their financial return”. Rising concerns over the environment bodes well for this UK share, then, a holder of the London Stock Exchange’s ‘Green Economy Mark’.

It’s worth remembering, though, that Water Intelligence carries a hefty valuation at current prices. City analysts expect the firm’s earnings to rise 13% in 2021. And this leaves the company trading on a forward price-to-earnings (P/E) ratio of 59 times. Such a lofty reading could prompt a sharp share price reversal if the company experiences any distress.

A look at Beyond Meat

As I said earlier, I think Beyond Meat is a great ‘green’ share to buy today. A rising focus on animal welfare is one reason why vegan and vegetarian diets are popular. Concerns over the impact of livestock farming on greenhouse gas levels are also driving people away from animal-based foods.

These issues explain why demand for Beyond Meat’s non-meat products is flying. Latest financials showed net revenues at the company soared 11.4% in the three months to March. This may have missed expectations but that sort of growth is still impressive given that its foodservice operations continued to suffer from Covid-19-related pressures. Beyond Meat is spending heavily so that it can play a big part in the meat-free revolution. As it said last week, it has remained “highly focused on investing in and building out production infrastructure in the US, the EU, and China” in recent months.

That’s not to say that Beyond Meat (like any share) doesn’t have its problems. The company has a giant $1.1bn net debt mountain, which could constrain its growth plans. This is particularly high in relation to the foodie’s sales today (net revenues were a shade over $108m in the first quarter). Still, I think this US share’s market-leading position in a fast-growing marketplace makes it an attractive buy right now.

The backstory

Beyond Meat is a US-based meat alternative producer. As the name suggests, it goes beyond meat and uses plant-based substitutes to make products that look like sausages and burger patties.

The company was only formed 12 years ago, but has enjoyed strong success that led it to go public back in 2019. Since then, the Beyond Meat share price has seen high volatility, but trades higher than the IPO price at present. Announcements regarding partnerships with the likes of Pepsi and McDonald’s caused recent spikes in 2021.

That being said, what’s been going on recently to cause a slump? One of the main factors was the Q1 results that were released. Net revenues were up 11.4%, and the company posted a gross profit of $32.7m. Unfortunately, high indirect expenses meant that it posted a net loss of $27.3m for the period. With revenues of only $108.2m, this is quite a large loss. This size of loss is one reason why I think the Beyond Meat share price has fallen so much this week.

My outlook for the Beyond Meat share price

At a broader level, the Beyond Meat share price has struggled due to the size of the company’s debt levels. It currently has total outstanding debt of $1.1bn. Again, when I compare this to quarterly revenues of around $100m, this is a large debt pile. 

This matters at the moment because there is concern in the market about rising inflation expectations. Rising inflation could mean raising interest rates in the US. This hurts companies with high debt levels. The higher the interest rate, the more expensive it is for companies to borrow.

I definitely think this factor is weighing on the Beyond Meat share price. 

I personally wouldn’t look to invest in the company at the moment. I think the outlook is quite uncertain. The latest update speaks of “significantly reduced demand in its foodservice channel (via) decreased foot traffic, streamlined menu offerings, and restrictions on foodservice locations’ capacity”. 

Even with consumption aided by cooking at home, I think the meat alternative offering is still not mass market. I don’t think the company has reached enough scale to rely on the existing customer base to drive revenue. The pandemic has further stunted growth, so I think it’ll take a long time before it becomes an attractive investment.

I could be wrong, and one element in favour of the Beyond Meat share price is the growing movement around the environment and veganism. If this trend continues to grow, the company could benefit.

Overall, I think the slump in the share price this week is justified, and would look elsewhere for a better buy.