There are more than 328 million people in the United States, and many of them are overweight or obese. Consumers need healthier foods now, more than ever. Selling plant-based frozen foods, Tattooed Chef (TTCF) is trying to be part of the solution after going public in October 2020 via SPAC. Here is why Tattooed Chef could be a rewarding long-term stock for investors.

The rising demand for plant-based foods

Obesity is a bigger problem in the United States than at any point in history; an estimated 42% of the population is now considered obese. Things are getting worse, not better -- in 2012, no state in the country had a rate higher than 35%.

Fortunately, consumer tastes are beginning to change, as populations that grew up on processed foods and high sugar drinks are beginning to age. Younger demographics such as millennials and Gen Z show interest in plant-based foods as part of a normal diet; a study showed that 79% of these groups eat plant-based foods at least one to two times per week.

Spread of vegan foods.

Image source: Getty Images.

Plant-based alternative food companies have sprung up over the past decade, including meat alternatives such as Beyond Meat and Impossible Foods, dairy alternatives such as Oatly, and prepared meals such as Tattooed Chef. A research firm estimates that the global plant-based foods market could be $74 billion by 2027, growing 11.9% per year.

Rapidly expanding store presence

Tattooed Chef makes various ready-to-eat plant-based frozen food products, including pizzas, bowls, smoothies, veggie burgers, and vegetable dishes. The company was founded by Sarah Galletti (the Tattooed Chef herself) and is run by her father Sam as CEO.

The company originally operated as a "food packer," making food products for other businesses, but has transitioned to focus on its own Tattooed Chef brand after its launch in 2017 had early success.

The Tattooed Chef brand is only a few years old and is still growing into the retail landscape in the United States. Over the past two years, the company has been pitching and testing its product with food retailers across the country. Tattooed Chef products were sold in 4,272 stores across the U.S. as of 2020, and its store count is expected to surpass 10,000 by the end of 2021. Tattooed Chef has earned rollouts with Walmart, Sam's Club, Costco Wholesale, Target, and Kroger.

Total revenue grew 75% to $148.5 million in 2020, and management is guiding up to 63% growth in 2021 to $242 million. These nationwide retailers could be the "big dominoes" to fall; Tattooed Chef could continue to expand into regional and local grocers if demand remains high.

Small size leaves room for upside

The company is investing for growth but has remained profitable, generating positive earnings before interest, taxes, depreciation, and amortization -- or EBITDA -- in 2019 and 2020. It's expected to remain positive in 2021 at $2 million to $4 million, despite increased spending. In Q1, sales and marketing expenses were $5.1 million, an almost tenfold increase from just $620,000 in 2020.

Tattooed Chef has just a $1.6 billion market cap and a price-to-sales ratio of 6.6 using 2021 guided revenue. As a food company, it's reasonable to expect a lower P/S ratio than a high-gross-margin software stock might fetch. Still, against a peer like Beyond Meat, which trades at a P/S of 14 despite its slower expected revenue growth of 39% for this year, Tattooed Chef could be underappreciated by investors.

Here's the bottom line

Tattooed Chef is a new company and product brand, so it's vulnerable as it works to gain the trust of retailers and the loyalty of consumers. The more success Tattooed Chef has, the more it could attract the attention of its traditional frozen food competitors. However, the company's strong growth would indicate that the business is more than holding its own thus far.

If the brand can continue to carve out shelf space in grocery stores and maintain its current momentum, investors could decide to reward the stock with a higher valuation, growing shareholder returns with it.