Tattooed Chef Stock Is Diluted Already, but Wait for a Bigger Drop to Buy In

At this point in the game, you’re probably sick and tired of reading about special purpose acquisition companies – or not, depending on your risk tolerance. But in either case, Tattooed Chef (NASDAQ:TTCF), which went public via a SPAC, fundamentally presents an alluring case for investors looking to bank off millennial and Generation Z trends. But will the technical winds cooperate with TTCF stock?

A photo of one person tattooing another person's arm.
Source: Olena Yakobchuk/ShutterStock.com

That’s more of a tricky question and it has to do with the somewhat confusing nature of SPACs – especially if you’re an investing newcomer and have jump onboard the SPAC bandwagon without giving the structure too much thought.

Hey, I’m not judging. I’ve made more than my fair share of dubious trades. However, let TTCF stock be a lesson in case you were caught off guard from its SPAC-tacular volatility.

First, SPACs are known as reverse mergers because the underlying blank check company (SPACs have no operations of their own) goes public with the sole purpose of identifying a merger target and securing a deal. Typically, SPAC sponsors have two years to get this deal done or the funds collected in trust for the SPAC IPO returns to shareholders.

Obviously, Tattooed Chef is a success story in that department. But the second point you must watch out for are these little things called warrants. They give their holders the right to buy shares (in this case, TTCF stock) at a specific price before a predetermined time.

Now, one of the core issues about warrants is that they are by nature dilutive. That is, the total share count outstanding increases when holders exercise their warrants, making each unit worth less compared to when the warrants were not exercised.

This nuance may have caught investors of TTCF stock by surprise. Tattooed Chef announced an exercise redemption date deadline of Feb. 16, 2021. Since then, shares have printed gallons of red ink.

Can TTCF Stock Rely on Its Core Messaging?

Of course, the warrant-exercise wave is a near-month-long news item. As the market appears to be done digesting the negative implications of an increased share pool, could the present moment offer an ideal entry point for TTCF stock?

Certainly, I can appreciate the appeal. For one thing, Tattooed Chef specializes in plant-based gourmet meals ready-made for the busy modern go-getter.

I don’t need to remind you about the popularity of the alternative protein market. The meteoric success of companies like Beyond Meat (NASDAQ:BYND) and Impossible Foods is evidence in itself.

Still, plant-based meals don’t mean much unless you can convert that to sales. Here again, TTCF stock offers a compelling fundamental narrative. Ample research indicates that millennials – nearly two-thirds of them according to a 2015 Nielsen poll – are willing to pay more for sustainable goods.

Unlike prior generations, young people today truly care about the ethos of an organization. If you look at the backstory of Tattooed Chef – quality ingredients, sustainable processes, a woman-owned enterprise – it checks multiple environmental, social and governance (ESG) boxes.

Under its own context, TTCF stock represents an intriguing business model. However, the biggest risk factor for the company – and it’s not unique to Tattooed Chef by a long shot – is the new normal.

I understand that some reports indicate that people today are working more hours from home than they did in the office. That would suggest increased demand for TTCF stock, but that’s not true for everyone.

Personally, I see some of my neighbors doing jack and getting a free one-year vacation off company dime. These lazy donkeys (thieves, really) have more than enough time to cook their own darn meals.

Moreover, let’s not forget that we’re still seeing weekly jobless claims that consistently exceed the worst single-week figure posted during the Great Recession. Logically, this doesn’t augur well for TTCF stock.

How to Ink Your Portfolio

Despite the broader concerns, I still like the idea behind Tattooed Chef, primarily because this is a brand I anticipate young people will trust. It’s relevant to their life philosophy and the product is good for you.

Which reminds me, that’s the other catalyst for TTCF stock – millennials tend to be health-conscious and they want their healthy choices delivered conveniently.

Thanks to burgeoning food technologies, it’s possible to have your cake and eat it too – so long as it’s gluten free.

So, here’s my take on Tattooed Chef shares. If you’re intrigued by the business model, go ahead and take a nibble but keep the powder keg dry. Because of the uncertainty in the market, you may see some more red ink in TTCF, presenting additional discounted opportunities.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


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