Swedish beverage company Oatly (OTLY) has fallen in price by more than 50% this year. Also, given dismal operating results and thin profit margins, is it wise to buy the dip in OTLY now? Read on to find out.
Swedish oat milk and beverage company Oatly Group AB (OTLY) supplies plant-based dairy products made from oats.
It offers Barista Edition oat milk, frozen desserts, ice cream, yogurt, ready-to-drink drinks and cookware, including cooking cream, in regular and organic, Crème Fraiche, Whipping Cream, Vanilla Custard, and a variety of spreads.
OTLY recently announced some serious business initiatives to strengthen its logistics. On June 9, 2022, OTLY launched electric-powered heavy-duty ground transportation trucks for the company in North America.
This strategy aims to expand the company’s operations in the Americas through enhanced sustainable transportation. In addition, on May 25, 2022, OTLY announced its “one hour delivery” of oat milk, frozen non-dairy dessert pints and novelties in Los Angeles and New York City.
Over the past month, OTLY has gained 3.9% to close out yesterday’s trading session at USD 3.77. However, it has lost 86.3% in the past year and 52.6% so far.
Here’s what could affect OTLY’s performance in the short term:
Weak financial data
For the first quarter ended March 31, 2022, OTLY’s revenue was $166.19 million, up 18.7% year over year.
However, gross profit came in at $15.85 million, down 62.2% year over year. Also, the loss for the period came in at $87.46 million, compared to a loss of $32.38 million for the same period a year ago.
Loss per share came in at $0.15, compared to a loss per share of $0.07 in the same period last year. In addition, year-over-year negative adjusted EBITDA increased 217.7% to $71.39 million.
In terms of its forward EV/S, OTLY’s 2.41x is 38.1% higher than the industry average of 1.75x. Also, the forward P/S of 2.52x is 124% higher than the industry average of 1.13x.
Poor profit margins
OTLY’s 12-month gross profit margin of 19.49% is 41.6% lower than the industry average of 33.39%.
In addition, the negative EBIT, EBITDA and net profit margins of 39.87%, 37.24% and 39.96% are significantly lower than the positive industry averages of 8.52%, 12.14% and 5.13%, respectively.
POWR ratings reflect bleak outlook
OTLY has an overall rating of F, which is equivalent to Strong Sell in our proprietary POWR Ratings system.
The POWR Ratings are calculated by taking into account 118 different factors, with each factor being optimally weighted.
OTLY has a quality grade of F, consistent with profit margins lower than those in the industry.
The stock is rated D for stability, in sync with the 24-month beta of 1.68. In addition, it has a D rating for value and growth, consistent with its high valuations and declining financials.
In the beverage industry with 35 stocks, OTLY is in last place. The industry has an A rating.
Click here for additional POWR Ratings for OTLY (Momentum and Sentiment).
See all the top stocks in the beverage industry here.
While the company’s recent operational developments have helped drive positive returns over the past month, weak financials and high valuations are cause for concern.
In addition, analysts expect OTLY’s earnings per share to fall 100% in the next quarter and 45.5% in the current year. So I think OTLY is best avoided now.
How does Oatly Group (OTLY) compare to its competitors?
While OTLY has an overall POWR rating of F, one might consider looking at its industry peers, Coca-Cola Consolidated, Inc. (COKE), which has an overall A (Strong Buy) rating, and Primo Water Corporation (PRMW), Ambev SA (ABEV) and Carlsberg A/S (CABGY), which has an overall B (Buy) rating.
OTLY shares closed at $3.73 on Friday, down $-0.04 (-1.06%). Year-to-date, OTLY is down -53.14%, compared to a -22.73% rise in the benchmark S&P 500 index over the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master’s degree in economics, she helps investors make informed investment decisions through her insightful commentary.
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