Taking Stock of S&W Seed Co’s Risk Factors

S&W Seed Company (SANW) is a global agricultural company. It provides different forage and specialty crop products to meet the need for animal proteins and healthier consumer diets. Its product portfolio includes alfalfa and sorghum seeds, along with hybrid sunflower and wheat.

SANW endeavors to become an integrated agricultural seed technology company. It recently launched a non-GMO herbicide tolerant sorghum solution and expects to launch its second novel trait technology product, Improved Quality Alfalfa, in fiscal 2022.

Additionally, SANW has also announced a stevia pilot production program with Ingredion. These developments are expected to drive revenue growth for the company in the future.

Let’s look at SANW’s recent fiscal 2021 financials and understand what has changed in its key risk factors that investors should know.

In fiscal 2021, SANW’s core revenue increased 16.5% year-over-year to $69.8 million due to Pasture Genetics’ operations in Australia, which SANW acquired in February 2020. During this period, SANW witnessed weakness in its European sunflower program and delays in certain customer product registrations. Additionally, owing to logistical challenges, about $5 million of revenue, which it expected to recognize in Q4 2021, is now expected to be recognized in the first quarter of fiscal 2022.

The impact of COVID-19 on logistics and an increase in the cost of goods sold resulted in gross margin decreasing to 16.3% from 18.8% a year ago. Adjusted net loss per share of the company stood at $0.65, as compared to adjusted net loss per share of $0.55 a year ago. (See S&W Seed Co stock chart on TipRanks)

The President and CEO of SANW, Mark Wong, said, “We have undertaken several strategic initiatives that are designed to drive improved operating results going forward, including the implementation of price increases on the majority of our products, to address overall rising costs and to more properly reflect the value of our proprietary products, and modifying the terms and conditions of standard customer contracts to address the volatility and increased costs of freight and transportation.

“We expect these actions to translate into improved gross and operating margins in the future.”

Looking ahead to fiscal 2022, the company sees core and total revenue land within a range of $80 million and $85 million, indicating a rise of 15% to 20% against fiscal 2021.

On September 28, B. Riley Financial analyst Sarkis Sherbetchyan reiterated a Buy rating on the stock but decreased the price target to $4.25 from $5. The analyst found SANW’s fiscal 2022 outlook below expectations but believes SANW is an “attractively valued microcap company.”

Lake Street’s Ben Klieve also has a Buy rating on the stock with a price target of $6.

Overall, the stock has a Moderate Buy consensus rating based on 2 Buys. The average S&W Seed Co price target of $5.13 implies 98.1% upside potential for the stock.

Now, let’s look at what’s changed in the company’s key risk factors.

According to the new Tipranks’ Risk Factors tool, SANW’s main risk category is Finance & Corporate, which accounts for 35% of the total 46 risks identified. On September 28, the company added one key risk factor under the Finance & Corporate risk category.

SANW notes that it needs to raise additional capital in the future. If the company fails to attract new capital then it may not be able to continue operations or may be forced to sell assets.

Alternatively, capital may not become available to SANW on favorable terms. Even if it is available then the financing terms may result in substantial dilution for existing stockholders.

The Finance & Corporate risk factor’s sector average is at 38%, compared to SANW’s 35%. Shares are down 28.8% over the past six months.

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