I'm Sounding an Alarm on Beyond Meat Stock Following Its Massive Drop Last Month

Beyond Meat (NASDAQ: BYND) -- the maker of plant-based meat alternatives that morphed into a meme stock this year -- entered the month of November with the unassuming valuation of just $1.65 per share. Within just three weeks' time, that already tiny number had been cut in half, and Beyond Meat was firmly in the penny stock category, trading at less than $0.86 per share.

What went wrong last month? The answer has a lot to do with the company's earnings -- or lack thereof. And it's the No. 1 reason I'm sounding the alarm about Beyond Meat stock today.

Image source: Getty Images.

Beyond Meat's third-quarter results

Beyond Meat reported its Q3 earnings last month, and the news wasn't great. Sales slid by 13% year over year, and the gross profit margin on those sales collapsed from 17.7% a year prior to just 10.3%.

And that was the good news.

Operating costs dropped Beyond Meat to a $112.3 million operating loss. Tax rebates slimmed its net loss to $110.7 million, but this was still a $1.44 per share bottom-line loss -- three times the size of last year's loss.

Even then, the bad news wasn't over. Turning to the cash flow statement, the company consumed $107.4 million in cash over the first three quarters of the year, burning through cash 44% faster than last year. At its present pace, Beyond Meat is likely to end 2025 with an annual cash burn of $144 million -- a fact made more significant when you realize the company only had about $131 million in cash and cash equivalents as of the end of Q3.

Simply put, Beyond Meat looked likely to run out of cash in a year.

Reading the writing on the wall

Recognizing the fix it was in, management proceeded to raise cash before its situation could get any worse. After the quarter closed, the company sold 58.9 million shares of new stock, yielding it about $148.7 million in cash after fees.

It then converted most of its $1.2 billion in convertible debt into equity by issuing 317.8 million more shares. While the final figures aren't yet in, it would appear this latter move has successfully removed most of the debt from Beyond Meat's balance sheet.

Between this move and the cash raise it conducted almost simultaneously, I estimate that right this moment, Beyond Meat might be mostly debt-free -- at the cost of inflating its total shares outstanding from 76.7 million to approximately 453.6 million shares (according to the latest data from S&P Global Market Intelligence).

What does this mean for investors?

On the one hand, that massive conversion of debt into equity removed the near-term risk of insolvency for the company. On the other hand, it massively diluted shareholders, each of whom has seen their ownership stake slashed by about 83%.

At the same time, Beyond Meat has done absolutely nothing to solve the problem that got it into this fix in the first place. Issuing shares to retire debt doesn't make it profitable. It doesn't stop the company from burning cash. To the contrary, most analysts are of the view that it will probably never be profitable or generate positive free cash flow.

To me, that makes this stock a sell.

Rich Smith 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.