Shares of Oatly Group (OTLY 3.02%) were sliding last month; as analysts continued to sour on the oat milk company, it became one of many broken IPOs in 2021. According to data from S&P Global Market Intelligence, the stock fell 11% in November.
As you can see from the chart below, the stock was volatile throughout December, but it never recovered from a downgrade early in the month.
There was no major company-specific news out on Oatly last month, but some negativity from analysts and other concerns such as the impact of rising interest rates on high-priced growth stocks seemed to weigh on the stock.
The stock fell 10.6% over the first three days of the month after HSBC initiated coverage on the stock with a sell rating and a price target of $7.80. Analyst Jeremy Fialko said Oatly management "fundamentally overestimated" the size of the oat milk market, and he also believes that the company is overinvesting in growth, which will eventually weigh on margins and force capacity cuts.
Oatly's recent decline mirrors that of Beyond Meat, the plant-based meat stock that surged after its IPO but then faded as its growth slowed dramatically. Investors seem to be reassessing the potential growth for plant-based products like Beyond Meat and Oatly.
As of its most recent quarter, Oatly was still growing briskly with revenue up 49% to $171.1 million, but the company is still unprofitable thanks in part to its expansion in the Americas. In Europe, where it's based and has a longer history, it is profitable. Over the long term, the company has forecast an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 20% and gross margins of 40%.
Oatly's slide was a continuation of a decline that's now lasted several months as investors have balked at the valuation for the alternative milk company. Based on its guidance of at least $635 million in revenue this year, the stock now trades at a price-to-sales ratio of about 8, which is still rich for consumer goods stock.
Oatly has no true peer in the oat-milk category, but WhiteWave, the owner of Silk soy milk and other alternative milk brands, was purchased by Danone in 2017 for $12.5 billion with about $4 billion in annual sales, showing that there is a precedent for successful alternative milk brands.
If Oatly can execute on its strategy and reach 20% EBITDA margins, the stock will certainly move higher from here, but a continued decline is also a possibility in the near term given the market sentiment and its still-pricey valuation.