Shares of Oatly (OTLY 13.19%) fell 10.7% in January, according to data by S&P Global Market Intelligence, as supply chain concerns and rampant inflationary pressures continue to weigh on the plant-based beverage maker.
Wall Street still likes Oatly's long-term prospects, but the chances of better entry points into the stock, even after losing three-quarters of its value, keep them from recommending the stock.
As the world's largest oat-based milk company, Oatly is rapidly expanding across three continents and plans to open two plants in Singapore and China to meet a large opportunity in Asian countries where Oatly says 80% of the population is lactose intolerant (the Australian dairy board pegs it as being closer to two-thirds of the population).
While revenue is growing, up 49% last quarter, Oatly is still generating significant losses, some $27 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), or a nearly sixfold increase from the year-ago period.
Piper Sandler analyst Michael Lavery did say last month he expects Oatly to have "significant upside" potential in 2022 if management can underpromise and overdeliver, but others are more muted in the near-term optimism.
HSBC analyst Jeremy Fialko thinks Oatly needs to prove it didn't move too early into China before shoring up its base in Europe, and whether the U.S. can deliver for the company.
Oatly, though, only has 9% to 11% penetration in the U.S., which it sees as potential for significant growth, but which could also signal tough headwinds to overcome. There are also a lot of competitors for the attention of consumers interested in a plant-based diet.
Oatly just had a number of ads it was running on Facebook, Twitter, and in newspapers banned in the U.K. over allegedly misleading claims about the environmental benefits of a vegan diet, plant-based foods, and Oatly products themselves. It admits it could have been more specific about the claims its ads made.
The oat milk maker did get some help from Starbucks (SBUX -0.10%) in the U.K. after the coffee chain said it would no longer charge extra for plant-based milks for drinks, but UI.S. Starbucks will continue to impose a $0.70 surcharge for such milk.
Oatly's biggest problem still seems to be its valuation as it trades for more than 6 times its sales even at this depressed valuation. While Wall Street has a consensus one-year price target of more than $18 a share, more recent analyst targets put it in the $7 range, a seemingly more realistic view given the hurdles Oatly needs to overcome.