One of the most disappointing stocks for investors in the alternative foods business has been Oatly (NASDAQ:OTLY). Since its initial public offering (IPO) a little more than a year ago, OTLY stock has been in a relatively consistent down trend. It has lost more than 80% of its value since its peak, with significant declines continuing to take place this year.
However, today’s 12% decline in OTLY stock appears to be driven by two key factors.
The first is Oatly’s second-quarter financial results. The company announced revenue growth of 22%, but provided forward-looking revenue guidance which disappointed the market.
Secondly, a recall of an Oatly Oat Milk product yesterday has soured the company’s outlook moving forward. The exact monetary impact on the company has not yet been estimated or disclosed. However, in combination with earnings, this catalyst has not helped investor sentiment in the stock.
Let’s dive more into what investors may want to make of these catalysts.
OTLY Stock: Buy, Sell or Hold?
Alongside other alternative food brands which went public in recent years, such as Beyond Meat (NASDAQ:BYND), Oatly was a high-flying stock with a valuation multiple to match. Now, with valuation compression taking hold, this stock has shrunk down to size.
Accordingly, for investors still bullish on the long-term growth profile of Oatly, perhaps this stock has become an interesting speculative buy. At some point, even the most overvalued stocks begin to look attractive. Some investors can certainly make that case at these levels.
However, with the potential for earnings contraction on the horizon, perhaps not. This earnings report did not paint a rosy picture for Oatly’s future. If the company isn’t able to pump out profitability and cash flow, there may be little to like about this story.
Thus, OTLY stock is a hold for me personally. Until this company shows signs of impressive free cash flow generation, investors are likely to feel the same way.
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On the date of publication, Chris MacDonald 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.
