Is a Reverse Stock Split Inevitable for Beyond Meat?

Beyond Meat (NASDAQ: BYND)'s stock closed at just under $0.81 on Monday. It has been in free fall over the past 12 months, losing 76% of its value over that stretch. In order to remain listed on the Nasdaq exchange, its share price needs to remain above $1.00. If it doesn't, it risks being delisted.

The company has been working on efforts to try to generate more growth, and recently announced the launch of a beverage line. But with plenty of bearishness surrounding the food stock of late, it may not be easy for the stock to rally. Is a reverse split inevitable?

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Is a reverse split bad news for a stock?

Beyond Meat is likely to do a reverse split, simply because there doesn't appear to be any near-term catalyst to turn things around. The company recently received a warning letter from the Nasdaq, notifying it that its shares have been below the $1 price point for 30 consecutive days. It needs to get its share price up and regain compliance within 180 calendar days.

A reverse split is likely inevitable for Beyond Meat in order to remain listed on the Nasdaq exchange. The good news is that it doesn't fundamentally affect anything. There are simply fewer shares outstanding, and the value of them goes up. But the company is in the same financial shape as it was before, and the stock is as attractive (or unattractive) as it was prior to the reverse split.

Beyond Meat's stock price could continue to fall if its financials don't improve

A reverse split may temporarily help a stock price rise in value, but that doesn't mean investors are suddenly sitting on some significant gains. And if Beyond Meat doesn't find a way to drastically improve its financial results, the stock is likely to continue falling.

In the trailing 12 months, the company has incurred $238 million in losses on revenue of $291 million. It has also struggled to generate any consistent growth, effectively giving investors no reason to remain optimistic about its business, hence the stock's rapid decline. Its food products were once seen as attractive alternatives for vegetarians, but they are highly processed, and unless heavily discounted, they are also fairly expensive.

Beyond Meat's business is facing multiple challenges, and without a clear path to both profitability and long-term growth, the safest option for investors is to simply stay away from the stock, as its value could still go a lot lower this year.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Beyond Meat. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.