If you go to Aterian’s (NASDAQ:ATER) website, the first thing you’ll notice is that it’s very dark and mysterious. The words used to describe the business and products are right out of Business School 101. They’re meant to get investors enthusiastic about the company and ATER stock.
I’d never heard of Aterian until given the assignment to write about it. If it makes you feel any better, I’ve never heard of Mohawk Group Holdings, either; that was the company’s previous name, until rebranding in April.
“This is an exciting and special moment for our company. Our new name, Aterian, draws inspiration from an important stage of early human progress. Dating to the Paleolithic era, the Aterian industry marked a leap forward in the design of innovative tools that led to greater efficiencies,” CEO Yaniv Sarig stated in its April 29 press release.
“Similarly, the consumer products industry is entering a pivotal moment as technology becomes a critical tool for brands in their efforts to predict and respond to online consumer demand at scale.”
I’ve been writing about business for more than a decade. I’ve seen it all when it comes to hyperbole. Sarig’s words are grade A quality drivel. They mean absolutely nothing.
However, Aterian seems to have no shortage of supporters. Analysts included. As a result, ATER traded as high as $48.99 in February.
Based on its share price from earlier this year, assuming it remained at those levels, it would have a market capitalization of $1.75 billion.
Say it isn’t so, Joe.
Analysts Believe ATER Stock Is Worth $14
It’s hard to understand why five analysts cover ATER stock. Harder still is that their median target price is $14, 71% higher than its current share price. This is an all-out infatuation. Worse still, four of the five analysts rate it Buy, with the other analyst rating it a Hold.
That’s pretty darn good for a business that’s averaged annual sales of $86 million between 2016 and 2020 while managing to lose $152 million in those years. For every dollar of sales since 2016, it’s lost $1.77.
Of course, I forgot to mention AIMEE (Artificial Intelligence Marketplace e-Commerce Engine), Aterian’s ace in the hole. An entire section on its website is dedicated to explaining why AIMEE is the bee’s knees. It even points out that AIMEE maximizes business efficiency.
However, I’m not sure why it illustrates this success by showing a chart with rising revenue and lower fixed costs. That’s a natural progression when scaling a business. So I fail to see how AIMEE has anything to do with the results it’s achieved.
Back to the $14 Valuation
Aterian currently has trailing 12-month (TTM) revenue of $216.60 through Q2 2021. In the second quarter, sales increased 14% to $68.2 million. It lost $18.9 million on an operating basis if you exclude the $23.3 million benefit for the change in fair value of its contingent earn-out liabilities.
So, Aterian’s operating loss in Q2 2021 was 10x its year-earlier loss, hardly the stuff of legends, Paleolithic or otherwise.
As of Aug. 4, it had 35.7 million shares outstanding. Average daily trading volume is 23.7 million shares, with a beta of 3.21.
Based on its current share price, it has a market cap of almost $371 million. At a $14 value, the market cap jumps to $500 million.
At present, it’s trading at 1.59x its TTM sales. You can buy Amazon (NASDAQ:AMZN) for 3.8x sales.
Who do you think will be more successful utilizing AI for e-commerce? Of course, if you have to think about that, you probably shouldn’t be investing in either company. But I digress.
InvestorPlace’s Mark Hake recently suggested that he believes ATER stock is worth anywhere from $12.30 on the low-end to $15.38. At the midpoint, he’s suggesting 65% potential upside over the next year.
Hake believes that the company’s financials in the past year would have been much stronger if not for high container costs. I don’t quite see it the same way. Aterian’s got a track record of losses over the past five years. If it had its stuff together, it would have been making money long before the container issue.
The Bottom Line
As I look at page 13 of its latest 10-Q, I see a breakdown of the various product categories it generates sales. In the first six months of 2021, heating and cooling and kitchen appliances account for almost half its sales. A third — essential oils — appears to be coming on with $17.3 million in sales, the third-largest product category. That’s encouraging.
However, my colleague suggested that 1.62x forecast 2022 sales seem too cheap given it ought to be profitable in 2022. I don’t see it this way.
Aterian reminds me of Lifetime Brands (NASDAQ:LCUT), a kitchenware company with a market cap very similar to ATER. Yet, it trades at 0.4x sales despite the fact it has 4x the sales and an operating profit of $66 million.
The analysts must be smoking some powerful stuff. There is no chance ATER is worth $14.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.