Is an investment in Oatly (NASDAQ:OTLY) stock risky? Absolutely. Since its IPO in late May, its share price has gone up and down. In fact, the stock is now trading below its IPO price. That simple truth alone suggests that OTLY stock is rife with risk.
That said, there are simply so many reasons to be optimistic about Oatly that it makes sense to cautiously invest in its shares now.
Since the market for plant-based food products is nascent but filled with promise, Oatly’s many positive catalysts should prevent it from facing significant trouble anytime soon.
Take Comfort in Beyond Meat
There are multiple parallels between Beyond Meat (NASDAQ:BYND) and Oatly.
Most obviously, both companies seek to disrupt the traditional food industry with plant-based alternatives. Beyond Meat makes beef, sausage, and chicken alternatives while Oatly makes oat milk.
Following its IPO, Beyond Meat has had a bumpy, but successful, journey. Beyond Meat underwent its IPO in late April of 2019, and its IPO was very successful. During the first three months of its existence, BYND stock rocketed steadily upward. In fact, it moved from its $65.75 IPO price to $235 in the span of 11 weeks.
Then it quickly went downhill, shedding almost all of its post- IPO gains. It had fallen to $75 by the end of 2019. The stock even dipped below its IPO price by mid-March of 2020. The latter decline coincided with the onset of the pandemic.
Since then, BYND stock has risen, and this afternoon it’s trading around $122. Investors who bought the shares at their IPO price of $65.75 or even at their March 2020 low of $85 should be very happy with their investment.
OTLY stock could wind up having a very similar trajectory. This afternoon, trading at $18.35 per share, the shares are below their $20.20 IPO price.
Wall Street analysts’ average price target of $30.46 suggests that they are optimistic about the name and expect it to climb meaningfully. The plant-based food market is nascent and inherently volatile, but Oatly is a strong competitor in the space.
Established Business
Oatly’s prospectus highlights the fact that it is the world’s original and largest oat milk company. The company has spent the past 25 years exclusively focused on becoming the leader of the oat milk market. As a result, it is likely far ahead of its competitors and should be able to compete against wealthier companies that are attempting to exploit the oat milk trend.
Oatly can be characterized as a growing company. Its financial statements clearly indicate that the firm is generating strong top-line growth. Its revenues more than doubled between 2019 and 2020, increasing from $204.047 million to $421.351 million.
In the first quarter of 2021, Oatly recorded sales of $140.052 million, not that far off from the $204.047 million of revenue it generated in the entirety of 2019.
So it’s fair to state that Oatly is beginning to bear significant fruit from the seeds it planted 25 years ago.
Not everything is sunny for Oatly, though. The company’s losses are increasing. But that’s not unusual for rapidly growing companies, and it is a negative factor that investors will have to overlook in order to potentially capitalize on an oat milk boom.
Capturing Growth
Oatly is best established in the European, Middle East and Africa market. Its Q1 sales in the region jumped 38% year-over-year there in Q1 . But its true growth markets lie in the U.S. and Asia. Last quarter, Oatly’s sales in those regions surged 65.2% and 414.6%, respectively.
Oatly is undergoing a rapid manufacturing capacity expansion to exploit the increases in demand for oat milk. The company anticipates making up to $1 billion of capital expenditures through 2023 to increase its capacity.
There are no guarantees, but Oatly is primed to become a huge success if the demand for plant-based milks continues to surge.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
