What happened

Shares of AppHarvest (APPH) fell 25% in August, according to data from S&P Global Market Intelligence. The high-tech indoor farming start-up posted disappointing earnings and filed for an at-the-money stock offering in August, which could have driven down the share price. Shares also likely got hit with the broad sell-off in growth stocks that resumed last month. 

So what

On Aug. 3, AppHarvest released its earnings for the quarter ending in June. Revenue was a measly $4.4. million for the period, up 39% year over year. Along with this revenue came a net loss of $28.7 million, or a net margin of approximately negative 600%. Building out farming infrastructure, especially with all the technology AppHarvest plans to implement, is expensive and will require much more scale than a few million in quarterly revenue to turn profitable. The company is working on this expansion right now with three new farms that will make berries and salad greens set to finish by the end of this year.

In the current market conditions, investors are not happy with companies that are losing tons of cash, which is likely why AppHarvest stock has sold off so much. The company also filed a $100 million at-the-money stock offering, which means the company can sell new shares of its stock to the public market whenever it wants to. This additional selling pressure, along with the prospects that the company may heavily dilute its existing shareholders, could have driven down the share price even further last month. 

Lastly, broad market developments likely impacted App Harvest's share price in August. At the end of the month, both the S&P 500 and Nasdaq 100 indices dipped around 5%, impacting all stocks that trade in the U.S., AppHarvest included. 

Now what

AppHarvest made some promising presentations when it went public through a special purpose acquisition company (SPAC). However, so far it has failed to live up to the hype. Unless the company can get to hundreds of millions in revenue within the next few years, the business will almost assuredly lose money every year through at least 2025, if not longer. This bridge to breakeven will require tons of capital, which likely means more equity or debt financing in the future, which will further dilute shareholders.

It doesn't matter how excited management gets about its indoor farming projects. AppHarvest has not shown it can be a viable business and does not belong in your portfolio today.