Why is Beyond Meat such a heavily shorted stock?

By Kirsteen Mackay

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Has Beyond Meat Stock fallen victim to the speculative short squeeze phenomenon? As BYND stock plummets once more, investors look for signs of fundamental reasons to invest.

Once-popular plant-based meat company Beyond Meat (NASDAQ: BYND) has seen its share price plummet 53% over the past year. And now BYND is one of the most heavily shorted companies on the US stock market. So why is there so much hate for this prominent brand? 

While the company appears to be attempting to extend its market reach and product range, sales have slipped. Furthermore, the initial excitement of a mass shift to flexitarian living is potentially losing its appeal.

Short Squeeze Target

A strange phenomenon took hold in 2021 as the retail investor cottoned onto the idea of a 'short squeeze' being bullish for a stock. The idea is if lots of investors buy up shares in the stock, short sellers will be forced to buy to cover their shorts, which leads the share price to rocket.

Between Jan 5 and 13, BYND stock rose 21% as word of the high short interest in the stock spread. It appears the reason it rose last week was a mixture of corporate news, investor hope and widespread speculation.

BYND stock has since given back some of these gains and fell 6% on Friday.

Unfortunately, if the 'short squeeze' is the investment case, rather than business fundamentals, it creates a pretty speculative way to invest.

Now BYND stock has been relegated to the ranks of GME and AMC as the short squeeze case makes its investment outlook less than compelling for serious investors.

One prominent stock furu even remarked, "BYND is worse than eating dandelions."

Why is Beyond Meat hated?

Legendary investor Jim Chanos is one notable short seller betting against Beyond Meat. He recently told the Financial Times he believes it has ceased to be a growth company. 

“Beyond Meat still trades at 10 times revenues. This is a company that’s still priced for perfection here. The market trades at 2.5 times revenues, and successful consumer companies trade at around 4 times revenues.”

The Beyond Meat share price has already fallen far below its all-time high. Back in 2019, when BYND stock went public via IPO, plant-based eating was in its infancy, and flexitarianism was all the rage.

Not long after its IPO debut, BYND stock soared above $235. Today it is hovering around $66, a whopping 72% lower.

Are Beyond Meat products popular?

Surely Beyond Meat must have some redeeming qualities? Indeed, the main thing is, its products are proving popular. There's no doubt Beyond Meat has its fans, and many people love to eat its beef alternatives. Indeed, widespread investment in alternative proteins and plant-based food continues today.

And the company has made several positive announcements in recent months despite facing margin pressures. It has been hiring executives from the wider food industry and launched its plant-based chicken nuggets in the US.

Last week the LA-based company announced its Beyond Italian Sausage Crumbles are now being served in three dishes on the menu of Yum! Brands' (NYSE: YUM) Pizza Hut restaurants in Canada.

This follows in the footsteps of Pizza Hut UK, where Beyond Meat Pizzas have become a permanent menu feature. Beyond Meat's fridge items are commonplace among supermarket and corner shop stores in the UK, and the company has introduced its chicken alternative to Yum! Brands' KFC. 

Furthermore, Beyond Fried Chicken now appears in Panda Express and A&W Canada. Its McPlant burger by McDonald's (NYSE: MCD) is now available nationwide in the US and previously launched in the UK and parts of Europe. 

The company is also opening a new scientific research and development center in Shanghai, China.

All this expansion gives the impression of a growth company but with exponential sales growth in 2020, keeping up is hard to do. No longer confined to home, consumers are eating out. Beyond Meat has also faced some supply chain challenges due to COVID.

Helping the planet

Still, in other positive news, Beyond Meat is arguably helping save the planet and its inhabitants.

Non-profit company World Animal Protection (WAP) recently looked into company sales at Beyond Meat and private competitor Impossible Foods. And its findings suggest over 630,000 animals in the US were spared last year, thanks to these two brands alone. Better still. Its calculations suggest the figure could be far higher, nearing a million animal lives. 

“Our assessment does not account for the full plant-based product market, such as those sold in grocery stores, menu items that feature other plant-based brands or those made in-house, or Beyond and Impossible products offered at other types of restaurants,”

This is the sort of statistic that will encourage retailers and legacy brands to partner with Beyond Meat to help bolster their own image.

Beyond Meat's financial landscape

Nevertheless, what matters to investors is the potential for profitability. And unfortunately, this is not forthcoming.

Beyond Meat issued a revenue warning in October, followed by disappointing Q3 earnings results. This led short interest to rise.

FactSet analysts covering the stock overwhelmingly rate it hold or sell, with only 10% still considering it a buy.

Today BYND stock is trading at 9 times sales. In comparison, Tyson Foods (NYSE: TSN), which sells traditional meats such as chicken, pork and beef, currently trades at less than 1 times sales. In its fiscal year, 2021, Tyson sold $47bn worth of products, while Beyond Meat is thought to have sold around $465m. The difference is stark.

Company 2021 Revenue P/S ratio
Beyond Meat $465m (estimated) 9
Tyson Foods $47bn 0.7
Kellogg $14bn 1.6
Nestle $86bn 4
Kraft Heinz $26bn 1.8
Oatly $635m 7.5

Furthermore, Beyond Meat's ingredient costs are escalating. For instance, the yellow pea price soared by over 100% during 2020/21. But Beyond has fixed price agreements in place for most of its pea protein supplies. Therefore, in its Q3 earnings call, it claimed not to expect impacts from pea protein isolate price rises in the near term.

Inflation is of broader concern, particularly when considering higher food, grocery, transportation and fuel costs.

Nevertheless, Beyond Meat prides itself on selling a portfolio of plant-based proteins made from simple ingredients without GMOs, bioengineered ingredients, hormones, antibiotics or cholesterol. This has broad appeal in a hyper-health-conscious environment, and this narrative, along with battling climate change, may keep BYND stock in the public eye going forward.

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Topics:
Food and Staples Retailing
Packaged Foods and Meats
Plant-Based Foods
Short Selling
Industries:
Consumer Staples
Companies:
Beyond Meat

Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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