Consumer Staples in a Turbulent Market

Consumer staples are often seen as a safe option during market fluctuations because their demand tends to remain stable. However, this can also work against them, as they usually lag behind stronger economic performance. This trend has persisted lately, with the sector experiencing a 13.5% decline over the last six months, while the S&P 500 managed to gain 10.1% during the same period.

Investors really need to be cautious. Since switching costs for everyday products are low, it’s essential to note that not all companies are equal. So, here are three consumer stocks that might not be worth your investment.

Beyond Meat (NASDAQ:BYND)

Market capitalization: $442.5 million

Beyond Meat is a frontrunner in the plant-based protein movement, focusing on alternatives to traditional meat products.

Reasons to be cautious about BYND:

1. Unit sales have been declining for the last two years, which suggests demand is weakening. The company might need to rethink its product strategy.
2. There’s been a 16.7 percentage point decrease in free cash flow margin since last year, indicating they’re using more capital just to stay competitive.
3. If cash reserves dwindle, it could lead to financing issues, possibly diluting shareholder value.

With a stock price of $0.83, the valuation-to-sales ratio sits at 0.2.

Kraft Heinz (NASDAQ:KHC)

Market capitalization: $29.48 billion

This company emerged from the merger of Kraft and Heinz in 2015 and offers a broad range of packaged foods, from coffee to cheese and processed meats.

Reasons to reconsider KHC:

1. Unit sales have declined over the past couple of years, indicating struggles with product transitions, which resulted in price hikes.
2. The operating profit margin dropped by 34.6 percentage points, which shows reduced efficiency compared to last year.
3. A subpar return on capital suggests management is struggling to identify valuable investment opportunities, hinting that the profit pool may be shrinking.

The stock is priced at $24.96, with a forward P/E ratio of 10.1.

Zevia (NYSE:ZVIA)

Market capitalization: $170.5 million

Zevia primarily produces healthy carbonated beverages, though it’s branching out into energy drinks and teas.

Concerns surrounding ZVIA:

1. Sales have remained flat over the past three years, indicating a lack of consumer enthusiasm.
2. With revenues of $162.8 million, Zevia can’t benefit from the economies of scale that larger competitors enjoy.
3. There’s a noticeable drop in operating profit margin, attributed to inadequate expense management.