Are Protein Drinks the Turnaround Catalyst That Beyond Meat Stock Needs?

Beyond Meat (NASDAQ: BYND) is in a tough spot. In the first quarter, its sales fell roughly 15.3% year over year to land at $58.2 million. While rapidly declining sales are a big issue for the company, its margin picture is arguably even more concerning.

Beyond's gross margin came in at 3.4% in Q1, which was actually a substantial improvement over the negative 10.1% gross margin it recorded in the prior-year period. However, a margin on that level essentially leaves no way for the company to shift into delivering profitability.

Now it's looking toward clear protein drinks as a new product category that could help it reenergize sales and begin to change its margins. Could protein drinks supercharge a turnaround for Beyond Meat?

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Beyond Meat is betting big on its new beverage line

Beyond Immerse is a line of protein drinks that has had a very limited test launch and will have an expanded rollout this summer. Last month, Beyond announced a partnership with Big Geyser, a beverage distributor that serves more than 26,000 locations in the New York metropolitan area.

Beyond lost $41.1 million last quarter, which works out to an operating margin of negative 70.6%. In other words, the company lost roughly $0.71 for every dollar in revenue it generated. If Beyond is to be a viable business over the long term, it clearly needs to find success in new product categories. Demand for the company's plant-based meat alternatives has been weakening, and the outlook for enough economies of scale being realized to allow for big gross-margin improvements is dim.

Positioning protein drinks at the center of its new product strategies looks like a reasonably well-founded move. Getting easy protein is a good hook for health-conscious consumers, and it's not an accident that "protein" receives such a high degree of focus in many food-industry marketing campaigns. It's a proven marketing winner.

On the other hand, the Beyond Immerse beverage line will have to carve out a foothold and find success in a product category that already has a substantial degree of saturation. The beverage business is a challenging, highly competitive industry -- and securing lasting shelf space and support from consumers is no easy task. Beyond's distribution deal with Big Geyser has the makings of a substantial and encouraging first step, but there's still a lot of uncertainty on the consumer-demand front.

With Beyond Meat's stock down roughly 99% over the past five years, even modest indicators of success for the Immerse beverage line could be enough to power substantial valuation gains in the near term. On the other hand, betting on the company's push into clear protein beverages to deliver a sustained turnaround looks like a risky proposition.

Keith Noonan 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.