Consumer staples are considered safe havens in turbulent markets due to their inelastic demand profiles. But they’re also double-edged swords as they often lag in booming conditions, and this pattern has persisted recently. Over the past six months, the industry has recorded a loss of 13.5%, a far cry from the S&P 500’s 10.1% ascent.
Investors should tread carefully as the low switching costs for everyday products mean that not all businesses are created equal. On that note, here are three consumer stocks we’re swiping left on.
Beyond Meat (BYND)
Market Cap: $442.5 million
A pioneer at the forefront of the plant-based protein revolution, Beyond Meat (NASDAQ: BYND) is a food company specializing in alternatives to traditional meat products.
Why Do We Pass on BYND?
- Falling unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
- Free cash flow margin shrank by 16.7 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Beyond Meat’s stock price of $0.83 implies a valuation ratio of 0.2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than BYND.
Kraft Heinz (KHC)
Market Cap: $29.48 billion
The result of a 2015 mega-merger between Kraft and Heinz, Kraft Heinz (NASDAQ: KHC) is a packaged foods giant whose products span coffee to cheese to packaged meat.
Why Should You Sell KHC?
- Declining unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
- Efficiency has decreased over the last year as its operating margin fell by 34.6 percentage points
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its falling returns suggest its earlier profit pools are drying up
At $24.96 per share, Kraft Heinz trades at 10.1x forward P/E. If you’re considering KHC for your portfolio, see our FREE research report to learn more.
Zevia (ZVIA)
Market Cap: $170.5 million
With a primary focus on soda but also a presence in energy drinks and teas, Zevia (NYSE: ZVIA) is a better-for-you beverage company.
Why Does ZVIA Worry Us?
- Products fail to spark excitement with consumers, as seen in its flat sales over the last three years
- Smaller revenue base of $162.8 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Poor expense management has led to operating margin losses
Zevia is trading at $2.57 per share, or 305.3x forward EV-to-EBITDA. To fully understand why you should be careful with ZVIA, check out our full research report (it’s free for active Edge members).
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