For companies in the food business in any form, consumer trends can be the make-or-break ingredient to their success. Sales can rise as shoppers become curious about a new concept, but they can fall just as easily when customers lose interest.
This likely became the case with Beyond Meat (NASDAQ: BYND), whose falling sales are becoming a long-term challenge. However, another food-related stock could defy trends and become a winning investment for shareholders.
Why I do not recommend Beyond Meat
Like many companies before it, Beyond Meat became the beneficiary and victim of consumer trends. It initially rose following its 2019 initial public offering. With so many consumers looking for a meat alternative, a product created from plants but tasting like meat initially took off, and the food stock briefly crossed $220 per share at its peak.
Nonetheless, sales eventually waned as demand from U.S. consumers fell. Moreover, researchers began to question the health benefits of plant-based meat as the product’s highly processed nature became clear. Consequently, revenue fell 18% in 2023.
That decline would have been worse if not for the gains in international markets. Still, Beyond Meat’s losses are considerable, and the company has no obvious path to profitability. If its customers outside the U.S. also lose interest, the stock could face a permanent decline.
The stock investors should buy instead
Fortunately, some food-related stocks hold the potential for gains, and investors could have a better investment option in Cava Group (NYSE: CAVA). This restaurant chain is on a path toward nationwide expansion, and it looks increasingly like the Chipotle Mexican Grill of Mediterranean cuisine.
Mediterranean food is less popular than Chipotle’s Mexican cuisine, meaning it could become a fad. Still, food experts regard it as one of the world’s healthiest cuisines. Chipotle has succeeded partly by making itself a favorite for those seeking fresh, healthy fast food. Following the same approach could help Cava transcend trends.
The company is also expanding rapidly, having increased its store count by 30% to 309 in 2023. This puts it well on the way to its goal of 1,000 restaurants by 2032.
Amid that push, Cava’s 2023 revenue totaled $729 million, a 29% increase from 2022 levels. In comparison, total operating expenses rose by 16%. That allowed the company to reach profitability, earning net income of $13 million, up from the $59 million loss in 2022.
That modest profit for now leaves the stock with an astronomically high price-to-earnings ratio. Nonetheless, its price-to-sales (P/S) ratio of 9 is only slightly above Chipotle’s 8 sales multiple. With the restaurant stock up nearly 40% since June, it could keep climbing higher if current trends continue.
Consider Cava stock
The differences in the product offerings of Beyond Meat and Cava Group remind shareholders of an important lesson. Investing in trends like plant-based meat often becomes a short-term phenomenon that does not bring long-term gains.
Admittedly, it is still unclear how well Mediterranean food will compete with other cuisines. However, the demand for more-natural food isn’t going away, and it has helped sustain Chipotle’s stock. If Cava can capitalize on the same phenomenon, the recent rise in its stock price could be just the beginning for its investors.
Should you invest $1,000 in Cava Group right now?
Before you buy stock in Cava Group, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Cava Group wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of March 11, 2024
Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Beyond Meat and Chipotle Mexican Grill. The Motley Fool recommends Cava Group. The Motley Fool has a disclosure policy.
I Wouldn’t Touch This Stock With a 10-Foot Pole. Here’s What I’d Buy Instead. was originally published by The Motley Fool