Beyond Meat Turns A Corner, But Now Is Not The Time To Buy It

Key Points

• Beyond Meat is moving lower despite a decent report and signs of improving operations. 
• A filing to sell shares weighs on the market and may push it lower. 
• Short interest is high, and institutional interest is dwindling, another dead weight for the market to bear. 

Beyond Meat NASDAQ: BYND is turning a corner. After a year of recovering from dashed hopes related to its partnerships with McDonald’s NYSE: MCD, Yum! Brands NYSE: YUM, and PepsiCo NASDAQ: PEP, the company is on track for cash-flow-positive operations by the end of the year. The company has been working to improve internal efficiencies while focusing on the markets that work, and so far, success has been better than hoped. The Q1 results should have the market moving higher, but some factors within the market promise to keep them under pressure if not moving lower. 

Among them is a new filing with the SEC. The filing is a registration to sell shares at the market price, and the number of shares is staggering. The company has registered to sell up to $200 million, equal to 30% of the market cap. Not only is that a stunning amount of shares to hit an already depressed market, but the threat of dilution may scare more holders out of this market and attract more bears, both of which will add downward momentum.

The Market Is Stacked Against Beyond Meat Retail Investors

The short interest in Beyond Meat is running above 30%. These levels will likely persist until there is a significant improvement in the fundamental outlook. That won’t come until share sales are off the table and cash-flow-positive operations are achieved. When that happens, the market may cause a short squeeze, but that is speculation for another time. Until then, market pressure is building and not in a good way. 

Downward pressure includes institutional selling and analyst malaise. The institutions have sold on balance for 3 of the last 4 quarters and the last 12 months shedding shares in a ratio of 4:1. That’s got their holdings down to 41% and falling, which is a significant headwind for retail investors and analysts aren’t helping any. The analysts' activity is mixed for 2023, but the takeaway is bearish. The sentiment is pegged at weak Hold verging on Sell compared to last year’s firm Hold, and the price target is falling. The price target assumes about 40% of the upside but is trending lower, and the most recent targets are much closer to the current action. This trend is not expected to change soon. 

Beyond Meat Has Turnaround Quarter 

Beyond Meat did not have a great quarter, but the results show the company is on the right track. The $92.2 million in revenue is down 15.8% compared to last year but beat the Marketbeat.com consensus by 50 basis points on strength in international markets. Sales in the EU and across European markets where offered were strong enough to offset unexpected weakness in the US. US markets are lagging in acceptance due to image issues, which is the genuine growth hurdle. 

The excellent news is that the adjusted EBITDA loss narrowed by nearly 50%, and additional improvement is expected by the end of the fiscal year. The GAAP loss of $0.92 was also better than expected and outpaced the top-line strength by 1000 basis points. The company updated its guidance because of the strength, revenue is still expected in a range to bracket the consensus, and the GM is expected to improve another 100 basis points above the previous target. 

The Technical Outlook: BYND Trends Lower 

Shares of BYND are moving lower. The stock recently set a new low and appears ready to move even lower. The indicators do not suggest support and could result in a larger decline. Based on the proposed share sales, the stock could fall another $2 to $3, if not more.