What happened
Shares of AppHarvest (APPH) gained as much as 12% on Monday following the farm-tech company's quarterly earnings report. The quarter wasn't much to get excited about, but the company's thoughts on its future are catching eyes.
So what
AppHarvest is a farming start-up that hasn't been public for long, joining public markets in February via a merger with a special purpose acquisition company, or SPAC. The quarterly earnings report provided the company an opportunity to update investors on how the business is doing and update its outlook.
Image source: AppHarvest.
The company reported a first-quarter loss of $0.35 per share on revenue of $2.3 million. Its flagship Morehead, Kentucky, facility produced 3.8 million pounds of tomatoes during the period, and AppHarvest said new projects at two other locations in Kentucky are on schedule and on budget.
By the end of 2025 AppHarvest intends to have 12 high-tech farms producing more than 40 million pounds of tomatoes annually. And AppHarvest is growing increasingly confident its high-tech approach to farming will generate strong returns.
The company said in its earnings report that it was raising its "long-term illustrative performance" for its 60-acre farm of the future to $23.3 million in annual adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), from $15.8 million. That would imply a potential 17% to 23% return on invested capital.
Now what
The projections are impressive, and if it all goes to plan AppHarvest is setting up to be an impressive business. But investors should be warned even if all goes to plan we are still in the early stages of this opportunity, and a lot of the growth is priced in. AppHarvest expects to generate net sales of $20 million to $25 million in all of 2021, while losing $48 million to $52 million. Those are scary numbers for a business that is valued by the market at more than $1.2 billion.
While I appreciate the potential, AppHarvest still appears to have a lot to prove. Investors interested in buying in should be aware of the risks, and keep this as a small, speculative part of a diverse portfolio.
