Oatly (NASDAQ: OTLY) shares made their NASDAQ debut last week through an initial public offering (IPO). With all the buzz surrounding the stock, I think it’s worth taking a closer look at the company.
But as always with IPOs, I’ll be sitting this one out for now and watching how investors respond to the shares in the coming weeks. I certainly don’t want to over-pay.
Oatly shares: an overview
Oatly is the world’s largest oat milk company. It was founded in the 1990s in Sweden, where a group of scientists at Lund University were exploring the mechanisms and effects of lactose intolerance.
It launched its first oat milk product in 2001 under the Oatly brand and the rest is history. The company has grown phenomenally and its plant-based products are stocked around the world in more than 20 markets in some 60,000 retail doors and 32,200 coffee shops.
Oatly shares listed at an IPO price of $17 giving the company an initial valuation of $10bn. Not bad for a plant-based company.
Bull case
There are a few things that I like about Oatly shares. The first one is that it’s an easy company to understand. It sells plant-based products globally. And that’s it. Pretty simple.
The IPO proceeds will be used to expand into new markets, offer new products and increase manufacturing capabilities. It already sells oat-based yoghurt and ice cream. I like that the brand is at the forefront of plant-based products and is recognised by many consumers.
It’s also worth noting that it always helps when a newly-listed company has a raft of celebrity investors. Oprah Winfrey, Natalie Portman and former Starbucks CEO Howard Schultz are some of the well-known names who have already backed Oatly. This should help with brand awareness going forward.
I also like that the plant-based industry is a fast-growing one. According to Oatly, the overall global dairy market totalled approximately $600bn in retail value as of 2020. In other words, if the company can even have a small share of this total addressable market, then it’s onto a winner.
There’s a seismic shift happening right now. The company has successfully created a new generation of plant-based consumers by converting traditional dairy milk drinkers. And I expect this trend to continue.
This is already demonstrated by Oatly’s rapidly increasing revenue. In 2020, it generated sales of $421m versus $204m in 2019. That’s a staggering growth of 106% in one year.
Bear case
But I do have some concerns regarding Oatly shares. The first being that the company is unprofitable. It incurred losses of $60m in 2020 and $36m in 2019.
I understand that it’s ramping up expansion and so profits will take a hit. But I’m unclear about its road to profitability. Also there’s a lack of financial data available in the IPO prospectus. So I don’t have enough information on the company’s finances to make an informed decision on Oatly shares.
My other concern is competition. I expect this to be fierce going forward as large companies move into the plant-based sector. As my fellow Fool, Edward Sheldon highlighted, consumers giant such as Unilever and Nestlé pose a threat too.
So for now, I’ll only be monitoring Oatly shares closely.
