Aterian’s Acknowledged Risk Factors Should Make You Think Twice

I don’t know much about Aterian (NASDAQ:ATER), the self-proclaimed leading consumer production platform which also levers a machine-learning-driven e-commerce platform to help drive revenue. What I do know is that I don’t envy my InvestorPlace colleague Will Ashworth following his less-than-generous take on ATER stock.

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Generally speaking, it’s best to punt publicly traded securities that have become memes or carry meme-ish qualities. Otherwise, you’re going to get an earful from critics correcting your wrong opinion, even though this and similar positions require one to have exactly that, an opinion. Of course, with ATER stock, there’s money involved so I understand the frustration (to an extent).

To be fair, there’s plenty of the green stuff rolling around in the Aterian narrative, that’s under no question. But the question Ashworth has is why that circumstance exists in the first place. As he described the company’s buzzword-rich website, “I’ve been writing about business for more than a decade. I’ve seen it all when it comes to hyperbole. [Aterian CEO Yaniv] Sarig’s words are grade A quality drivel. They mean absolutely nothing.”

Admittedly, I’ve learned — and am still learning — to avoid strong or pointed language regarding investments like ATER stock. However, it’s hard not to disagree with Ashworth’s assessment. As an investor, I prefer to understand what the business is about with clear, even rudimentary descriptions over marketing glitz.

Nevertheless, I can also appreciate why ATER stock is attractive to speculators. According to its website, Aterian extracts valuable consumer behavioral insights from data and feedback. From there, it builds products that the data confirms will resonate with potential customers.

As well, Aterian acquires and scales emerging brands that already attract a robust consumer base. And with its AI platform, it says it can boost acquired brands along with brands associated with Aterian’s various partnerships.

The Pandemic Changes Everything for ATER Stock

Given that so many brands fail from overexuberance and confidence in their viability, using evidence-based analytics to determine consumer demand seems a far superior alternative. So long as the AI is accurate, ATER stock could swing higher.

Of course, that in itself is a major question. But from what I gather from my other colleague Mark Hake’s analysis, ATER stock is a shot worth taking. As he noted, Aterian “has had substantial increases and delays in its shipping containers, forcing it to use FedEx (NYSE:FDX) and higher-cost air freight suppliers. Nevertheless, on Aug. 9, the company reported higher sales and gross profits for its second quarter ending June 30.”

That’s a valid point, suggesting that once the shipping crisis fades, ATER stock could start moving north. But the when may be a lot longer than anticipated. As Aterian’s most recent form 10-Q stated, the pandemic and subsequent supply chain disruption created massive challenges.

Together, these have led to substantial increases in the costs of shipping containers, which we rely on to import our goods. This has reduced the reliability and timely delivery of such shipping containers and has substantially increased our international inbound costs as well as last mile shipping costs on our oversized goods.

In other words, ATER stock really depends on circumstances beyond the underlying company’s control. Even worse, the global supply chain crunch isn’t just tied to a specific commodity, like oil. Rather, as a report by Boston’s WBUR points out, virtually every product line has suffered negative impact.

If that wasn’t enough to reduce your appetite for ATER stock, you should consider that it’s not just about ships and containers. Rather, the world is reeling from a shortage in truck drivers. Therefore, even if desired inventory is onshore — and evidence suggest that’s the case for many product categories — there are limited options of getting said inventory to store shelves.

Bet with Jamie Dimon?

Before I potentially flood my inbox with a wave of emails, I should point out that not everybody has a doom-and-gloom outlook regarding the global supply chain crisis. JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon expressed optimism that the U.S. economy will bounce back from logistics-related woes.

“I should never do this, but I’ll make a forecast,” Dimon stated in a virtual meeting with the Institute of International Finance. “This will not be an issue next year at all. This is the worst part of it. I think great market systems will adjust for it like companies have.”

Whether you believe in ATER stock or not, we can all hope that Dimon is correct. Still, even if he were, you’d imagine that weaker retail-related names will incur a disproportionate impact to what will surely be a downgraded winter holiday season of 2021.

For conservative investors, you should probably steer clear of Aterian. For anybody else, do your due diligence — and watch those headlines.

On the date of publication, Josh Enomoto 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 Publishing Guidelines.

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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