Beyond Meat is the latest addition to the list of “zombie stocks” compiled by independent equity research firm New Constructs.
The research firm, which uses machine learning and natural language processing to parse corporate filings and model economic earnings, warns that Beyond Meat Inc.
has a high risk of declining to $0 a share.
“Beyond Meat must dramatically cut costs and lower its cash burn, or it will go bankrupt,” wrote New Constructs CEO David Trainer, in a note released on Tuesday. “Companies with heavy cash burn and little cash on hand are risky in any market, but especially now.”
Shares of Beyond Meat have fallen 47.8% in 2022 and 72.2% over the last 12 months, compared to declines of 13.2% and 6.4%, respectively, for the S&P 500 index
“Beyond Meat has failed to generate any positive free cash flow since going public in 2019,” Trainer wrote, adding that, since 2018, the company has burned through $1 billion in free cash flow.
The cash drain at Beyond Meat shows no signs of slowing as the company burned through $635 million in free cash flow over the trailing 12-month period that ended in the first quarter of 2022, according to Trainer. “With just $548 million in cash and cash equivalents on the balance sheet at the end of 1Q22, Beyond Meat’s cash balance could only sustain its cash burn for just 10 months after 1Q22,” he wrote. “Raising additional capital to fund further cash burn would likely come at a high cost and be bad news for existing and new shareholders.”
Set against this backdrop, New Constructs added Beyond Meat to its list of “zombie stocks,” which include Carvana Co.
and Peloton Interactive Inc.
“Beyond Meat’s severe cash crisis puts the company’s stock at significant risk of declining to $0 per share,” Trainer added.
New Constructs adds that Beyond Meats is heavily reliant on partners to promote its products, operates in a business with few barriers to entry, and is increasingly competing with companies that control its distribution. “No realistic amount of spending can overcome these obstacles, given the spending power of competitors dwarfs Beyond Meat’s entire operation,” said Trainer, adding that Kroger Co.’s
trailing 12-month free cash flow is $5.3 billion. By way of comparison, Beyond Meat has a market cap of just over $2 billion.
In its most recent quarterly results Beyond Meat said its revenue was hit by a foodservice decline after the loss of a partner. The plant-based meat company reported a wider-than-expected fiscal first-quarter loss and revenue that missed FactSet expectations.
Beyond Meat reports its fiscal second-quarter results after market close on Thursday.
Shares of Beyond Meat rose 6.3% to $34.04 on Tuesday, outpacing the S&P 500’s gain of 0.4%.
Of 19 analysts tracked by FactSet, two have overweight or buy ratings, 12 have hold ratings, and 5 have underweight or sell ratings for Beyond Meat.