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Shares of Oatly Group (NASDAQ: OTLY), an oatmeal company fell over 12.5% yesterday after it announced Q3 results for 2022. Oatly reported revenue of $183 million and an adjusted loss of $0.18 per share. Analysts forecast the company to report revenue of $212.1 million and an adjusted loss of $0.11 per share in the September quarter.
Oatly also estimated revenue in 2022 to range between $700 million and $720 million, well below estimates of $798.6 million. Its revenue and earnings miss, as well as a tepid guidance, has dragged Oatly shares lower. OTLY stock price is currently trading 91.5% below all-time highs, valuing the company at a market cap of $1.26 billion.
Let’s see what impact Oatly’s performance in Q3 and if the stock can stage a comeback by the end of 2022.
Is Oatly stock a buy or sell?
Oatly offers a wide range of plant-based dairy products made from oats that include oat milk, frozen desserts, ice creams, and yogurts, in addition to ready-to-go drinks. The company claimed Q3 results were below expectations due to COVID-19 restrictions in Asia, production challenges in the Americas, and foreign exchange-related headwinds.
In the year-ago period, Oatly reported revenue of $171 million and an adjusted loss of $0.05 per share. We can see that while sales were up just 5% year over year its adjusted losses more than doubled compared to the prior-year period.
But Oatly CEO Toni Petersson stated, “However, we continue to see strong velocities, year-over-year sales volume growth, and minimal price elasticity globally which we believe demonstrates the power and resilience of the brand.”
The company’s management aims to improve operational efficiencies, which should expand profit margins and lower cash burn rates amid a macro-environment that is challenging and inflationary.
Oatly stock went public in May 2021 and it laid out plans to increase spending at an aggressive pace. It originally forecast to spend between $300 million and $400 million on capital expenditures in 2022. In May 2022, it increased its CAPEX forecast to between $400 million and $500 million, while its revenue guidance for the year stood at $830 million.
But lower consumer spending and rising interest rates have meant the company lowered its CAPEX targets to between $220 million and $240 million in 2022. Its revenue estimates have also declined by more than $100 million in the last six months, making this unprofitable stock a high-risk bet right now.
What next for OTLY stock price?
Oatly has lowered its revenue estimates in Q4, and the outlook assumes reasonable containment of COVID-19-related infection rates globally, no further lockdowns in China, and no additional deterioration in Europe’s macro environment.
Oatly and its plant-based food peers, such as Beyond Meat (NASDAQ: BYND), are competing with lower-priced essential products such as meat and milk. As the plant-based vertical is wrestling with much lower profit margins and high price points, demand might fall off a cliff due to a decline in consumer spending.
Oatly is a two-decade-old company but remains unprofitable and is yet to gain traction as a household brand in Europe. The increase in competition and other non-dairy alternatives might further pressurize revenue and profit margins in the future. Its adjusted losses might touch $0.60 per share in 2022, from a loss of $0.33 per share in 2021.
There are far better stocks trading on the bourses right now that are profitable and enjoy a competitive advantage over peers compared to Oatly.
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