Tattooed Chef (NASDAQ:TTCF) stock has not lived up to investor expectations. The share price of this once high-flying SPAC has struggled to lift off its lows. Every quick rally seems to lose momentum as sellers enter to push TTCF stock back down to the $16 levels.
There is still plenty of potential in TTCF stock, though, for investors willing to wait a bit.
The company recently reported its second-quarter 2021 results. Tattooed Chef’s revenue came in at $50.7 million. While this represented year-over-year growth of 45.9%, it was $3.35 million below than analysts’ expectations. TTCF stock dropped 20% the next few trading days to a low of $16.59 yet recovered partially after a few days.
To be honest the revenue miss wasn’t that bad as the company still had healthy growth for the quarter. Particularly in the TTCF’s higher-margin branded food category which grew 62.3%, to $33.1 million from $20.4 million last year.
The change in product mix increased gross margins overall, from 10.8% to 15.7%. The company also noted that the gross margin increase was driven by “improved production capacity, and the ability to take advantage of economies of scale.”
Tattooed Chef reported Adjusted EBITDA of a loss of $5.9 million and a net loss of $53.2 million for the quarter. The company also has $140.2 million in cash to fuel its expansion efforts.
Expansion Plans are Going Well
While investors may have been disappointed with the quarterly results, Tattooed Chef has laid out its aggressive plans for the rest of 2021. The company is targeting revenues in the range of $235 million – $242 million. This represents an increase of 58% – 63% compared to 2020.
It also plans to increase gross margins to the range of 16% – 22%. Tattooed Chef currently has lower gross margins than its foodservice industry peers due to its lack of scale. However, as the company continues to beef up (plant-based, of course) its production will start to benefit from economies of scale.
The unfortunate effect of this expansion though is that the company has to maintain an EBITDA loss in the interim. The company expects to have a negative EBITDA of $14 million to $17 million for 2021. Apart from infrastructure and production costs, Tattooed Chef has committed to an aggressive marketing and customer acquisition plan.
TTCF Stock Still in Early Stages
The company has the potential to achieve its high revenue growth targets and more. There is a massive secular trend of plant-based eating that will only accelerate in the future. There is evidence that the younger generations, millennials and Gen-Z’ers are driving this shift in dietary preference.
Gen Z in particular will be an important demographic. According to a survey by Finder.com, 35% of Gen-Z want to eliminate meat from their diets. This trend will only accelerate as Gen-Z gets older and has increased spending power. The global vegan food market is predicted to reach $31.4 billion by 2026.
The shift in attitude could affect TTCF stock beyond simply increasing company revenue. TTCF stock could see increased funds flow as vegan investing takes off. This can be similar to the rapid growth seen in ESG investing.
Advisors Series Trust announced the creation of the VegTech Environmental Impact and Plant-based Innovation exchange-traded fund. This ETF will invest in companies that promote less animal-based food production. I can see TTCF stock being a key holding of a fund such as this. If vegan investing becomes its own category within ESG investing, the improved funds’ flow will support TTCF stock.
It is for these reasons that I continue to like TTCF stock. My investing style tends to be “Buy and Hold” therefore I am not particularly focused on the quarter by quarter results. I can understand how some investors can be disappointed. However, I am willing to wait and ride this trend.
On the date of publication, Joseph Nograles held a long position in TTCF. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
