Swedish oat milk and beverages company Oatly Group AB (OTLY) provides plant-based dairy products made from oats. 

It offers Barista edition oat milk, frozen desserts, ice creams, yogurts, ready-to-go drinks, and cooking products, including cooking cream, in regular and organic, Crème Fraiche, Whipping Cream, Vanilla Custard, and a variety of spreads.

OTLY has recently announced some earnest business initiatives to strengthen its logistics. On June 9, 2022, OTLY launched electric-powered, heavy-duty trucks for the company’s ground transportation in North America. 

This strategy aims to expand the company’s business in America through improved 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 yesterday’s trading session at $3.77. However, it has lost 86.3% over the past year and 52.6% year-to-date.

Here is what could shape OTLY’s performance in the near term:

Weak Financials

For the first quarter ended March 31, 2022, OTLY’s revenue came in at $166.19 million, up 18.7% year-over-year. 

However, its gross profit came in at $15.85 million, down 62.2% year-over-year. Also, its loss for the period came in at $87.46 million, compared to a loss of $32.38 million in the year-ago period. 

Its loss per share came in at $0.15, compared to a loss per share of $0.07 in the prior-year period. Moreover, its negative adjusted EBITDA increased 217.7% year-over-year to $71.39 million.

Stretched Valuations

In terms of its forward EV/S, OTLY’s 2.41x is 38.1% higher than the industry average of 1.75x. Also, its forward P/S of 2.52x is 124% higher than the industry average of 1.13x.

Poor Profit Margins

OTLY’s trailing-twelve-month gross profit margin of 19.49% is 41.6% lower than the industry average of 33.39%. 

Furthermore, its negative EBIT, EBITDA, and net income 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 Prospects

OTLY has an overall rating of F, equating to Strong Sell in our proprietary POWR Ratings system. 

The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

OTLY has a Quality grade of F, consistent with its lower-than-industry profit margins.

The stock has a D grade for Stability, in sync with its 24-month beta of 1.68. Moreover, it has a D grade for Value and Growth, consistent with its stretched valuations and declining financials.

In the 35-stock Beverages industry, OTLY is ranked last. The industry is rated A.

Click here for the additional POWR Ratings for OTLY (Momentum and Sentiment).

View all the top stocks in the Beverages industry here.

Bottom Line

Although the company’s recent operational developments helped register positive returns over the past month, its weak financials and stretched valuations are concerning. 

Moreover, analysts expect OTLY’s EPS to decline 100% in the next quarter and 45.5% in the current year. Thus, I think OTLY is best avoided now.

How Does Oatly Group (OTLY) Stack Up Against its Peers?

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 S.A. (ABEV), and Carlsberg A/S (CABGY), which have an overall B (Buy) rating.

OTLY shares closed at $3.73 on Friday, down $-0.04 (-1.06%). Year-to-date, OTLY has declined -53.14%, versus a -22.73% rise in the benchmark S&P 500 index during 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 commentaries. More...

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