What happened

Shares of frozen food company Tattooed Chef (NASDAQ:TTCF) were up 50.2% in December, according to data provided by S&P Global Market Intelligence. The stock was down 11% in November, due to a short-seller taking aim at the company. But it was able to rebound sharply last month thanks to an exciting new product launch and a compelling presentation given at its first analyst-day event.

So what

Tattooed Chef directly sources ingredients from farms and turns them into ready-to-eat frozen food options. All products are either vegetarian or vegan, and many are gluten free. And the company believes it's poised to seize this large and growing market. According to its analyst-day presentation, its current market opportunity for frozen prepared foods is $34 billion and it can soon expand into the dessert category, which is an almost $13 billion opportunity. Not bad for a small-cap stock.

A businessman draws an upward arrow over a bar chart displayed on a transparent touchscreen.

Image source: Getty Images.

Because of its large opportunity, Tattooed Chef is guiding for $1 billion in revenue by 2026. To get there, the company plans to introduce many new products in coming years, like its exciting new launch last month. On Dec. 8, it announced new plant-based pepperoni and plant-based sausage crumble products, entering the plant-based meat category currently dominated by household names like Impossible Foods.

Given that it was down entering December, it's not surprising to see Tattooed Chef stock bounce back with these new developments.

Now what

As a young company, expanded distribution is one of the main ways Tattooed Chef is growing right now. That's good and necessary, but investors do need to be aware of a potential problem. Expanded distribution can mask weak sales for a time. Like other companies, Tattooed Chef recognizes revenue when its products are delivered to the point of distribution -- like convenience or grocery stores. So hypothetically, if it doubles its distribution agreements, then the company could double its revenue. But that doesn't mean end consumer demand doubled. In fact, end demand could be stagnant or dwindling and it would be hard for investors to notice until it's too late.

This doesn't mean that Tattooed Chef will be a bad investment. In fact, it could be a good long-term investment. I'm simply making the point that investors will need to look beyond headline revenue figures and look for indicators of demand at a consumer level. Conference calls and investor presentations will likely be a good source for this as this newly public company gets more established in 2021.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.