There's a long list of stocks that soared during the pandemic only to crash as consumer behavior changed. Some of those stocks have staged recoveries, while others remain deep in negative territory and may never reclaim those pandemic-era highs.
Peloton(NASDAQ: PTON) and Beyond Meat(NASDAQ: BYND) were high-flyers during the pandemic, but plunging demand for pricey exercise bikes and fake meat products has put the stocks through the wringer. It may be tempting to bet on turnarounds, but both stocks look poised for even deeper losses.
Peloton
Connected fitness company Peloton attempted to turn itself around after demand for its pricey bikes and treadmills cratered in the post-pandemic world. The company leaned on its mobile app and subscriptions while slashing costs, and it did succeed in growing its subscription revenue considerably.
But it wasn't enough. Former CEO Barry McCarthy stepped down in May as progress stalled, and the turnaround plan transformed into a cost-cutting plan. The company's total subscriber base, which includes connected fitness subscribers who own Peleton equipment and app subscribers who don't, has stagnated. Subscription revenue has flatlined as well.
Peloton produced positive free cash flow in its latest quarter, but it's likely not sustainable. The company has been reducing its inventories, which is temporarily providing a boost to this metric. The company's GAAP net loss during the latest quarter was $167 million on $718 million in revenue.
The company is now in cost-cutting mode. Peloton announced plans to reduce annual costs by more than $200 million by the end of fiscal 2025, which include laying off 15% of its employees and rethinking its international strategy. Given the size of the company's losses, this won't be nearly enough return to profitability. The company is also refinancing its debt to push back maturities and buy itself more time.
Despite Peloton stock tumbling about 98% from its all-time high, further losses aren't out of the question. The company is still valued at close to $1.2 billion, which seems optimistic given its ongoing struggles. The company's book value, or assets minus liabilities, was negative $590 million at the end of March.
With a comeback looking increasingly unlikely, Peloton is a stock to avoid.
Beyond Meat
Much like Peloton's connected fitness products, Beyond Meat's plant-based meat enjoyed elevated demand during the pandemic. Also like Peloton, that demand didn't last. Even amid rising prices at the grocery store, Beyond Meat struggled with the toxic combination of slumping demand and eroding pricing.
Beyond Meat's first-quarter report contained little in the way of good news. Revenue dipped 18% year over year, gross profit was barely positive, and free cash flow was deeply negative. Unit volumes were down across the board, and net revenue per pound declined in the U.S. retail segment.
Beyond Meat is working to bring costs down. On top of reducing operating expenses, the company is consolidating its manufacturing footprint in an effort to reduce its per-pound production costs. Outside of cost-cutting, Beyond Meat is introducing price increases this year.
While this plan may boost the company's gross margin, it also has the potential to cause further volume declines. The number of outlets selling Beyond Meat products is already in decline, and higher prices could exasperate the situation.
Beyond Meat expects to generate around $330 million in revenue this year and post an operating loss of well over $100 million based on its outlook. The company is still valued at about $460 million after the stock crashed 97% from its pandemic-era high.
For perspective, real meat producer Tyson Foods currently trades for less than 0.4 times annual sales. It's hard to argue that Beyond Meat should trade at a premium given the company's terrible performance and slumping sales. Even if Beyond Meat stock were cut in half from here, it would still be pricier than its real meat peer.
There's no doubt about it: Beyond Meat is in serious trouble. Just like Peloton, a successful turnaround looks like a long shot.
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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Beyond Meat and Peloton Interactive. The Motley Fool has a disclosure policy.
