Sweden-based Oatly (OTLY) is a company with a clear vision: build a food system that’s better for people and the planet. Oatly believes that transforming the food industry is necessary to face humanity’s greatest challenges across climate, environment, health, and lifestyle.
With this trend gaining increased traction globally over the past decade, Oatly is benefiting from a very favorable market environment. In fact, it is the world’s largest oat milk company. As a result, I am bullish on Oatly. (See Analysts’ Top Stocks on TipRanks)
Consequently, the company has been expanding swiftly, growing its production capacity in order to meet the underlying demand. As Oatly’s production capacity expands, so does the top line, which has been snowballing sequentially over the past few quarters.
Overall, Oatly seems like it’s ready to take over the world. However, due to its expansion plans, investors will have to wait a while in terms of seeing a positive bottom line.
Recent Developments
Oatly’s growth is well demonstrated in its most recent quarterly results. In Q2, revenue came in at $146.2 million, an increase of 53.3% year-over-year. Revenue was $95.3 million in the previous year’s comparable period.
The company launched in Switzerland and Ireland. In addition, it opened its Singapore manufacturing facility, which is expected to produce 75 million liters of finished goods per annum at full production capacity.
Oatly’s expansion plans included the announcement of Fort Worth, Texas, as the location of Oatly’s third U.S.-based production site. The site is expected to open in 2023.
Specifically, Oatly expects to grow its annual total production capacity from 361 million liters of finished goods to approximately 1.5 billion liters by 2023. According to management, this will require as much as $400 million in annual capital expenditures (CapEx) in Fiscal Years 2021 and 2022. CapEx is then expected to decline to $100 million to $200 million in Fiscal Year 2023, likely signaling that the company will start seeking a more substantial bottom line beyond this point.
Unlike other vegan-oriented companies, such as Beyond Meat (BYND), I am confident in Oatly’s global expansion prospects as oat milk and its related products (e.g., ice cream from oat milk) can appeal to the overall market regardless of one’s dietary preferences.
How Much Is the Stock Worth?
Due to the rapid production expansion, revenues are expected to grow 85% in Fiscal Year 2022, which is utterly impressive for a consumer staples company of this size. The stock is trading at around 12 times its expected Fiscal Year 2021 revenues, which implies a massive premium for the industry.
However, even if we are to assume a gradual deceleration from Oatly’s current growth rates, the premium is likely well-justified at the ongoing top-line expansion pace.
Wall Street’s Take
Turning to Wall Street, Oatly Group has a Strong Buy consensus rating, based on eight Buys and one Hold assigned in the past three months. At $25.22, the average Oatly Group price target implies 83.4% upside potential.
Conclusion
With investors and analysts alike struggling to accurately predict Oatly’s potential net income and EPS in the foreseeable future, the stock may continue to suffer further declines.
Overall, I am bullish on the stock, as the market’s long-term potential outweighs current profitability issues.
Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.
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