While Tattooed Chef (NASDAQ:TTCF) stock is making strong progress on multiple fronts, I recommend that investors wait for a significant pullback in the name before buying the shares.
While I’m more convinced of the company’s strong potential now, the high valuation and multiple threats the company is likely to face remain worrisome.
In my previous column about the prepared-plant-based meal company, I expressed concerns about the lack of supermarket penetration and its emphasis on frozen foods. The company appears to be quickly remedying both issues, while its strategy in other areas is impressive.
A Closer Look at TTCF Stock
On its fourth-quarter earnings conference call, Tattooed Chef reported a number of grocery store chains were either selling its products for the first time or adding more of its products. These names included Stop & Shop, Southeastern Grocers, Ingles (NASDAQ:IMKTA), Bristol Farms, Whole Foods, Meijer, Lowes Foods and United Supermarkets.
The company’s strategy in the areas of product development and marketing is generally on target.
In product development, Tattooed Chef definitely wants to expand beyond frozen food and is looking to offer many different types of plant-based pizza. In marketing, the company plans to launch a major ad campaign.
CEO Sam Galletti said the company believes it can boost its annual sales to $300 million with frozen products.
“We see a path to $500 million in sales as we look to expand beyond the frozen food section and into the grocery aisle with shelf stable products,” Galletti said.
With Tattooed Chef looking to boost its sales target by 67% with non-frozen products, I’m sure that it plans to launch many such offerings.
As a pizza lover who is severely lactose intolerant, I can attest that there are still very slim pickings when it comes to frozen vegan pizza in supermarkets, both in terms of quality and variety. Therefore, I think that the company’s decision to launch five different types of plant-based pizza, including two-cheese, vegetable, meat lovers, pepperoni, and a white pizza, is a great idea.
On the marketing front, the company will soon be launching a $15 million multi-media campaign.
Since the company spent little on marketing until January 2021, while its products are entering many new stores and it could soon face tough competition, I applaud its decision to undertake a wide-ranging marketing initiative.
Potential Competition, the Reopening, and Valuation
As I wrote in my last column on TTCF stock, the company is likely to face very difficult competition from large companies if its sales keep jumping. I still believe that’s the case.
Meanwhile, because herd immunity from the coronavirus is on the way soon, Tattooed Chef will soon have another competitor it hasn’t had to deal with much in some time: eating in restaurants.
Pent-up demand for eating in restaurants is likely to kick in within a few months, hurting supermarkets and the companies that sell their products in them.
TTCF stock is trading at 7.6 times two analysts’ average 2021 sales estimate. That’s a very high multiple for a food maker.
The Bottom Line on TTCF Stock
Tattooed Chef is making great progress, and its strategy is generally sound. Still, with in-restaurant eating likely to jump soon, the shares trading at a high valuation and the Street becoming more value-conscious, I believe that longer-term investors will be able to buy the shares at a much cheaper price down the road.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Plug Power, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.