2020 has been a year to remember for some special purpose acquisition companies (SPACs). Popular SPACs like Virgin Galactic Holdings have enjoyed remarkable returns in the face of COVID-19. Dozens more have gone to market in the past several months offering little more to investors than cash to buy a private business.

Many SPACs come with limited transparency and frothy multiples. Conversely, Forum Merger II (FMCI) is one SPAC that actually looks to be a strong buy. Its announced acquisition target -- the Tattooed Chef -- offers a rare combination of transparent and sparkling fundamentals with compelling value. Interestingly, the Tattooed Chef sells all organic plant-based foods, a space expected to grow at a brisk 14.1% clip through 2024.

A plethora of fruits and vegetables.

Image source: Getty Images.

What is the Tattooed Chef? 

The rapidly expanding food company grows its own organic vegetables in Italy, prepares its own hand-crafted food bowls, and distributes them to grocery chains nationwide. Some of its products include smoothie bowls, buffalo cauliflower burgers or wings, enchilada bowls, and much more. Importantly, roughly 63% of company sales are expected to be branded rather than private label by next year, commanding higher margins and higher multiples. The company remains squarely focused on expanding higher-margin, branded sales using the Tattooed Chef label to do so.

The stock is set to debut in public markets with an enterprise value (EV) of $482 million. Based on that appraisal, it trades for a multiple of 15.6 times forward EV/EBITDA (earnings before interest, taxation, depreciation, and amortization) and 2.2 times forward EV/sales. To compare, rival Beyond Meat trades for nearly 200 times forward EV/EBITDA and 17 times forward EV/sales.

Encouragingly, alongside rapid expansion, profitability is also heading higher. From 2019 to 2020, EBITDA margins jumped from 8.2% to 11.6%. This year that margin is set to expand to 13.9%, far higher than Beyond Meat's. Some younger companies struggle to grasp profitability alongside trying to boost sales growth. Tattooed Chef does not have that issue.

Form 2018-2021, Tattooed Chef is expected to post a compounded annual growth rate (CAGR) of a whopping 67%. In the first six months of calendar 2020, its impressive growth sped up to 97%, making that CAGR target seem feasible. Comparatively, Beyond Meat grew revenue by 55.7% last year and is expected to grow revenue by 53.6% this year.

Tattooed Chef rivals Beyond Meat in growth and is less rich in terms of valuation. That is a set up for investors to get behind. Furthermore, Tattooed Chef's offerings are much broader and are all freezer-stable. This means a longer shelf life to grocers and more purchasing flexibility throughout its supply chain.

The path forward

Today, Tattooed Chef is in just 7% of Walmart stores, but CEO Sam Galletti is confident that number will grow to 50% by the end of the year. That is 4,945 new stores nationwide to sell its products. Costco Wholesale is another client, and the company is looking to expand into regional grocery chains as well. Inking gigantic, quality customers such as Costco and Walmart hints at an ability to land future contracts.

When checking with food-ingredient contacts familiar with Tattooed Chef, there was one key takeaway: The demand is so strong that the company cannot add new production facilities for expansion fast enough. That's a high-quality problem that smart investors look for. It shows demand growth is still accelerating and additional growth is imminent.

So what?

While many SPACs should be avoided, Forum Merger II is one to consider. Its acquisition target is enjoying a super-charged growth trajectory yet seemingly comes with great value. Its positioning in the plant-based food space should grow as the sector matures and shareholders will reap the rewards. This will be a staple in my portfolio for years to come. Consider adding it to yours.