Plant-based frozen food company Tattooed Chef (TTCF 400.00%) went public via SPAC (special purpose acquisition company) merger in late 2020. A new player in a hot plant-based foods market and the general popularity of SPAC stocks made it a hot commodity with investors; the stock hit as high as $25 before sliding back down to $13 over the past several months.

But Tattooed Chef has had some notable missteps in its first year as a public company. Young companies like Tattooed Chef are trying to build credibility with investors, so is the stock's dip a buying opportunity? Or is it a sign to stay away?

Is there enough revenue growth?

There's added pressure on a company once it enters public markets. Management needs to establish trust with investors looking for a reason to justify them owning shares -- the best way to demonstrate that credibility is to put up great operating results.

Tattooed Chef has reported four quarters since going public. While the company got off to a good start beating analyst estimates in its first two quarters, revenue has fallen short in the two most recent earnings reports, missing by 6% in 2021 Q2 and 8% in 2021 Q3. It even had to abruptly reschedule its Q3 earnings reporting because it needed more time to finish its financial statements, which isn't a good look for the company.

Person preparing food on the counter.

Image Source: Getty Images

Growing its retail footprint across the United States is a big part of its growth strategy, and it's been aggressive. After setting a goal to expand from 4,242 locations to 10,000 in 2021, it raised that goal to 14,000 locations. However, Tattooed Chef has lowered its revenue guidance, which seems to fly in the face of its growing store count.

Going from under 5,000 locations to 14,000 is a giant leap, but year-over-year revenue guidance is just 41%-45% growth. Management laid out complete 2021 revenue guidance of $235 million to $242 million in Q1 but lowered it to $210 million to $215 million the following quarter. Not only is this a bit puzzling because it added so many stores, but it's even below the original projections it presented before going public, which tend to be optimistic to impress prospective shareholders.

Investors will want to see what 2022 results bring; management noted that its capacity has nearly quadrupled throughout 2021, so that would be potentially troubling if growth continues slowing.

Missing on profit projections

The company's also had some bottom-line issues as well. Tattooed Chef's pre-SPAC projections called for $30.8 million in 2021 EBITDA (earnings before interest, taxes, depreciation, and amortization), but it's about to fall well short of that. Management expects a full-2021 EBITDA of negative $18 million to $20 million.

Tattooed Chef might have made these pre-SPAC projections without foreseeing moves the company ended up making. It made acquisitions to help boost its capacity, including buying food manufacturer Foods of Mexico for $37 million in May 2021 and snack-bar maker Belmont Confections for $18 million in October 2021. The company's also noted increased costs of raw ingredients, freight, and containers, but falling nearly $50 million short in profit on roughly $200 million in sales is a huge miss.

Can an investor trust a company selling less than it planned and losing more than it anticipated? It might be fair to call these growing pains from a young business trying to expand rapidly, but it's something that needs to improve.

Risk versus reward at this price

Investing is about analyzing the risk versus the possible reward on any stock, and I think Tattooed Chef has shown that there's risk in its business right now. Management needs to deliver better results and be more consistent. However, it could also be a rewarding stock.

If you compare the stock to a competitor like Beyond Meat, Tattooed Chef trades at a cheaper price-to-sales valuation, loses less free cash flow, and grows revenue faster. Tattooed Chef seems to be a more attractive stock, and the company operates in the fast-growing plant-based foods industry, which management thinks could be a $162 billion market worldwide by 2030.

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The upside is undoubtedly enticing, considering that Tattooed Chef's market cap is just $1 billion. Tattooed Chef seems to have enough potential that it's worth taking a position in, but it's a risky stock until it proves it can execute; in other words, it needs to grow revenue while showing a path to turning a profit.

The great news about a company like Tattooed Chef is that you don't need many shares to make a lot of money. A smaller position size would still work out if the stock becomes an eventual multi-bagger while limiting risk to your portfolio if the company never operates the way it needs to.