Shares of recent IPO and plant-based packaged foods maker Tattooed Chef (NASDAQ:TTCF) plummeted in early trading on the NASDAQ Thursday after Kerrisdale Capital, an entity that promises to "tweet investment ideas," announced this morning that it is "short" shares of the company.
As of 10:50 a.m. EST, Tattooed Chef stock is down 5.5%.
In a six-part tweet, Kerrisdale listed its concerns about Tattooed Chef, which range from slowing sales growth, weak profits, and a rich valuation to the alliterative "customer concentration at cost-conscious Sam's Club."
Elaborating, Kerrisdale notes that ">70% of $TTCF branded sales go to one customer – Sam's Club – and ~75% of *that* is just 4-5 products." Valuation-wise, the short seller warns that Tattooed Chef's 13x branded revenue valuation is "far in excess" of that of other meatless foods makers, and estimates that the stock is worth "less than half its current price."
In-depth interviews with $TTCF customers indicate a dangerous degree of concentration risk. We estimate >70% of $TTCF branded sales go to one customer – Sam's Club – and ~75% of *that* is just 4-5 products. (4/6)— Kerrisdale Capital (@KerrisdaleCap) November 19, 2020
Looking ahead, Kerrisdale notes that "frozen food sales usually bottom in summer and rise into fall/winter," which would ordinarily be good news for sales right now. However, Kerrisdale says it has seen Nielsen data showing that "Tattooed Chef retail sales in recent months are *lower* than summer levels, underperforming other emerging brands," so doing the opposite of what you'd ordinarily expect them to do.
These are all worrisome comments, and judging from today's sell-off, investors appear to be worried. But here's the thing: Kerrisdale's comments don't seem to tally with the results that Tattooed Chef reported just 10 days ago, boasting of "record revenue" in Q3 and sales rising 65% year over year. While it could be that Kerrisdale is right in its forecast -- and we won't know for certain until the next earnings report two and a half months from now -- for the time being, to me, sales actually look just fine at Tattooed Chef.
When you get right down to it, what we're seeing here might just be shorts doing what shorts do and Kerrisdale attempting to create a self-fulfilling prophecy that Tattooed Chef stock is going down.