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Here's Why Tattooed Chef Stock Tanked Today

By Jon Quast – Aug 13, 2021 at 1:24PM

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Sales are coming in hot but the company isn't as profitable as it originally expected.

What happened

Shares of food company Tattooed Chef (TTCF -3.36%) tanked on Friday after the company reported financial results for the second quarter of 2021. Growth was good, but the market appears to be focusing on some negatives with the company's revised outlook. For this reason, the stock was down 15% as of 12:45 p.m. EDT.

So what

For Q2, Tattooed Chef generated revenue of $50.7 million. That's up 46% year over year. One of the primary drivers during the quarter was the company's increased product distribution. Its products now have over 48,000 points of distribution, which is more than double what the company had at this time last year.

A frustrated investor sits in front of a computer, while covering their eyes in disappointment.

Image source: Getty Images.

It seems like Tattooed Chef stock is dropping today because of the guidance offered by management. Looking at the top line, guidance is unchanged. Management still expects to generate revenue of $235 million to $242 million for 2021 -- that's good. Revenue guidance implies a red-hot year-over-year growth rate of 58% to 63%.

However, Tattooed Chef's management had previously guided for full-year gross margin of 20% to 25% and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $2 million to $4 million. With today's press release, management lowered guidance for gross margin to 16%-22% and guided for an adjusted EBITDA loss of $14 million to $17 million. This is causing the stock to drop today, continuing what's been a volatile ride for shareholders over the past year.

TTCF Chart

TTCF data by YCharts

Now what

Tattooed Chef's management doesn't appear to doubt its ambitious 2026 guidance of $1 billion in revenue. However, with a market capitalization already at $1.4 billion, the company will have to make meaningful progress on profitability between now and then for this to be an attractive investment opportunity. For perspective, excluding one-time charges, it had a net loss of $7.2 million in Q2. By 2026, management expects its gross margin to expand to over 35%. But considering it revised its 2021 margin guidance down, it's understandable why investors appear to have their doubts.

In coming quarters, watch Tattooed Chef's revenue growth and margin expansion. Both are keys to success.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tattooed Chef, Inc. The Motley Fool has a disclosure policy.

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Tattooed Chef, Inc.
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