Beyond Meat Has Dropped 32% This Year. Generational Opportunity or Falling Knife?

Some investors jump on a stock when its price drops steeply. Others equate it to catching a falling knife. Distinguishing between the two will result in vastly different investment outcomes.

Beyond Meat's (NASDAQ: BYND) shares have dropped 32% this year, through July 24. Unfortunately for investors, the stock has been in a multi-year decline, losing an eye-popping 99.6% over the past five years.

The big decline makes this a good time to take a deeper dive into the company to determine whether Beyond Meat presents a value opportunity or if its troubles aren't over.

Image source: Getty Images.

Promising concept hits a snag

Beyond Meat caught consumers' attention with its plant-based meat. The idea was that the product had the same taste and texture as traditional animal meat. However, Beyond Meat's offerings would have health, humanitarian, and environmental benefits.

Investors clamored for the shares when the company conducted its initial public offering (IPO) in 2019. The price shot up 163% in the first day of trading.

However, more recently, Beyond Meat has struggled mightily. There are several reasons, including people not widely adopting plant-based meat, consumers pulling back on higher-priced food items due to overall inflationary pressures, and heightened competition resulting in lower demand from restaurants and retailers.

After sales reached nearly $465 million in 2021, they slid down to $275.5 million last year. That's about a 40% drop in five years. And the company has continued to report operating losses. This year hasn't gotten off to a good start, either. Revenue in the first quarter fell 15.3% year over year to $58.2 million.

Can the company turn things around?

The current situation certainly doesn't look promising. That's why it's unsurprising that management has a plan. Whether the company's strategies will prove effective remains to be seen. Earlier this year, management announced that it would expand beyond plant-based meat products to broader protein offerings. This includes plant-based drinks.

Certainly, Beyond Meat's management has to try to stem the sales decline. But entering new product areas where it doesn't have a strong presence or expertise seems like a risky strategy. And the company is not making the change from a position of strength.

Perhaps it will pay off down the line, but that's a big risk for investors. It's better to miss some of the share price upside to see how things play out. In the meantime, I'd avoid Beyond Meat stock.

Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Beyond Meat. The Motley Fool has a disclosure policy.