Oatly (Nasdaq: OTLY) finished 18% higher on its first day of trading. Oatly is a Swedish company that is a pioneer in the oat milk market. And, oat milk is one of the most popular milk alternatives and growing at a rapid rate. Currently, it's only second to almond milk in the alternative milk category. Overall, alternative milk is one of the fastest-growing categories due to increasing allergies and people electing to eat vegan diets.
The stock closed at $22.46 which gives it a market cap of $13.2 billion which is above its pre-IPO price of $17. The company was able to raise $1.4 billion during its IPO. Following its IPO, Oatly is the most valuable company in the alternative animal products space largest company, exceeding Beyond Meat (Nasdaq: BYND).
Company Profile
Oatly was founded in 1994 by brothers Rickard and Oste Bjorn, although it made its debut in the U.S. only a few years ago mainly in coffee shops. The product quickly became a hit among customers and baristas due to its creamy texture, taste, and ability to froth like milk. Its popularity became an issue as there were routine shortages of it.
Oat milk's popularity has now gone from coffee shops to grocery stores as sales tripled over the last year. The company has also been adding additional oat-based products such as ice cream and yogurt.
The company's S-1 filings reveal that its revenues grew by 102% in 2020 and reached $421 million. 25% of revenue was from food service, while retailers accounted for the rest. Overall, the company had a loss of $60.4 million as it spent heavily on marketing, increasing production, and entering new markets.
The company currently has a dominant position in the oat milk market, although it does face competition from third-party labels and companies like Chobani. Some of the celebrity and institutional investors in Oatly include Oprah, Natalie Portman, Howard Schultz, China Resources, and Blackstone.
Stock Price Outlook
Oatly is a remarkable success story in many ways as it's basically invented and dominated an entire category that didn't exist a decade ago. It is also at the forefront of a trend - declining milk consumption and increasing alternative milk sales - that doesn't seem likely to change anytime soon.
However, the company is really expensive with its $13 billion valuation and $420 million in sales. Further, there are many new oat milk products on the shelves, many at a lower price point. Additionally, many considered oat milk to be a healthy drink, however research has shown that it's not good for diabetics or anyone with blood sugar issues. Finally, food tends to be a relatively low-margin business given the costs of production and distribution.
For these reasons, Oatly should be considered more of a trading vehicle rather than a long-term investment.