Like most high-growth stocks, shares of Tattooed Chef (NASDAQ:TTCF) have been hammered in recent days. However, TTCF stock remains a good investment for investors wanting to take advantage of the broad-based healthier eating trend.
The stock seems to have hit a strong resistance level at the $25 price range and is bouncing around a strong support level of $20. This level also coincides with TTCF stock’s 200-day simple moving average, leading me to believe that this level could hold quite well.
This is a fantastic entry point for investors with a long-term time horizon. With that said, let’s examine what makes an investment in TTCF stock so compelling.
The “Eat Healthily and Sustainably” Trend
Tattooed Chef is a food company that sells plant-based frozen foods. It has a portfolio of different products like cauliflower pizza crust, mac and cheese, zucchini spirals, smoothie bowls and many others. The company is taking advantage of the same secular trends that are powering the rapid rise of Beyond Meat (NASDAQ:BYND) and Impossible Foods but approaching it from a different angle. After all, it is to everyone’s benefit that we all start eating healthier and in a more sustainable way.
I believe that there is a market for people who want to eat more plant-based food but who don’t like in particular the taste of salad or tofu. This was the pitch that made Beyond Meat and Impossible Foods so compelling. Tattooed Chef simply expands this concept beyond burgers to pizza and other food items.
The company has also recently announced that it will begin offering plant-based meat alternatives, starting with plant-based pepperoni and plant-based sausage crumbles. These items closely resemble the taste and texture of meat, are made with real food ingredients and are gluten-free. The company aims to launch a suite of products containing these meat alternatives in the near future.
Tattooed Chef is scaling up at just the right time to catch on to this massive trend as consumers become more health-conscious and aware of the environmental impacts of animal-based products. In 2020, the plant-based food sector was valued at $21.2 billion globally, and it could expand to $38.4 billion by 2025, representing a compound annual growth rate (CAGR) of 8.9%. There is a lot of growth potential in the U.S., in particular, as only 3.3% of the population identify as vegetarian or vegan, as opposed to 7% in the U.K. and 4.3% in Germany.
Blockbuster 2020 Results
Tattooed Chef recently reported its Q4 2020 and full-year earnings, and they show the company executing on its growth plans. The company’s revenue in Q4 2020 rose by an impressive 48% from $26.8 million in the same time last year to $39.6 million. However, this included the company’s legacy private-label business.
Looking at the Q4 2020 result of the Tattooed Chef branded product alone, there was a massive increase of 172%, indicating the company’s products are resonating with consumers. At the end of 2020, the branded product sales grew from $18.3 million in 2019 to $84.6 million, a revenue increase of 363%. Unlike other high-flying growth stocks in the tech industry, Tattooed Chef is actually marginally profitable. The company’s net income in 2020, excluding the effects of a one-time income tax benefit, was $6.1 million, compared to $5.6 million in the previous year.
These sales will only accelerate as the company expands its distribution network. The company has mostly relied on Walmart (NYSE:WMT) and Costco (NYSE:COST) for its distribution. At the end of 2020, you could find the company’s products in 4,300 stores and 23,000 points of distribution. This is set to increase very soon as the company has acquired new retail distribution channels in 2021. The number of stores where you can find Tattooed Chef products will soon increase by 41% as 1,765 new chain stores have agreed to carry the company’s products. This translates to 8,000 new points of distribution.
Investor Takeaway for TTCF stock
Tattooed Chef should continue on its growth trajectory in 2021. The company is trading at about 9.7x 2020 sales, which is a bit on the expensive side. However, the company is rapidly growing, and the growth in its branded product business is especially encouraging.
At its current trajectory, the company can grow into its valuation within a few short years. I believe investors should consider accumulating TTCF stock on any weakness.
On the date of publication, Joseph Nograles held a LONG position in TTCF.