After a promising start, the Oatly (LSE: OTLY) share price is now sinking back to its IPO price of $17 a pop. What’s going on? And is this an opportunity for UK investors like me to get involved?
Oatly share price: what gives?
It all started so well. The Oatly share price shot out of the gates on 20 May as its stock began trading in the US market. The involvement of celebrities such as Oprah and Hollywood actress Natalie Portman as investors only raised the Swedish company’s profile even higher. Even Starbucks Chairman Howard Schhultz was a backer.
And who can blame them for wanting to get involved? Last year, Oatly managed to double revenue to $421m as its plant-based milk and other products continued to be adopted in coffee shops all around the world. The nutritional benefits coupled with a ‘right-on’ environmental message proved an intoxicating mix for market participants.
Unfortunately, reality now appears to be biting down on the Oatly share price.
Of course, a drop in the value of a newly-listed stock isn’t all that unusual. It is to be expected that traders would look to profit from the hype surrounding the initial flotation before moving on to the next shiny new thing.
This makes even more sense when it’s remembered that this company doesn’t make a profit. Oatly reported a net loss of $60.4m last year as it invested in marketing its brand and expanding its range.
Now, all this is fine when things are going swimmingly and traders are whistling on their way to work. It’s not quite so comforting when there’s talk of Covid-19 infection rates rising. Big growth stocks also tend to fall out of favour when inflation rears its head.
So, what happens next?
While I’m in danger of comparing apples with oranges here (maybe oat-based milk substitute with meat substitute burgers), I wonder if we can learn anything from the performance of Beyond Meat.
Tellingly, Beyond Meat’s share price has been all over the place in the last two years. Those buying the stock at the end of July 2019 will still be heavily under water. Those who bought during the March 2020 market crash will be close to trebling their money. With volatility like this, it’s no wonder the company continues to attract the attention of short-sellers.
Problematically, those doubters seem to now be setting their sights on Oatly. One short-seller — Spruce Point Capital — has now broken cover to question the investment case. This includes asking how a company that makes a similar amount of revenue to Beyond Meat can have a market value that is almost 40% higher. It’s a fair point.
Of course, the presence of a short-seller or two isn’t a reason for me not to buy this company’s stock. However, it may be the beginning of a sustained attack on the company that could send the Oatly share price even lower.
I’ll pass…for now
As I mentioned when recently commenting on a promising UK small-cap, I’m bullish on the alternative food sector. Even so, the recent performance of Oatly stock and some ‘interesting’ headlines makes me think it might be wise to hold off buying for now. I don’t see an end to the weakness just yet.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Beyond Meat, Inc. and Starbucks. The Motley Fool UK has recommended the following options: short July 2021 $120 calls on Starbucks. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.