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What’s the upside for Oatly’s share price?

Oatly’s [OTLY] share price has had a terrible run of form since listing at the end of May. After hitting $28.73 by 11 June, the stock has soured over 64%, ending Tuesday’s session at $9.52.

Spoiling investor sentiment in the alternative milk maker are supply chain issues, missed earnings expectations and slashed earnings forecasts.

Yet, business is experiencing double-digit sales growth, and despite some trimmed price targets, one analyst on Wall Street sees Oatly’s share price more than doubling over the next 12-months.

 

 

 

 

Is Oatly’s share price a bargain?

Nothing is going to trigger analyst price target changes like revised earnings guidance - to say nothing of Oatley’s share price.

In its third quarter results, revenue came in at  $171.1 million, missing the expected $185.6 million. Worryingly, Oatley lowered its full year guidance from $690m to $635m. Behind the revised guidance were supply constraints, slower than expected production in the US, and COVID-19 measures.

“The 3Q21 miss and 4Q guide down is a perfect example of a company that has grown so fast and expanded so far that the management team cannot, presently, forecast the business” - Truist analyst Bill Chappell

 

“The 3Q21 miss and 4Q guide down is a perfect example of a company that has grown so fast and expanded so far that the management team cannot, presently, forecast the business,” said Truist analyst Bill Chappell.

The analyst added that it was too early to ‘abandon ship’ on the company’s growth story or the wider one around plant-based substitutes.

It’s worth pointing out that despite missing Wall Street expectations, Oatley’s revenue jumped 49.2% year on year in the third quarter. Contributing to revenue gains was the reopening of restaurants that had been shut during pandemic induced lockdowns.

However, profit margins slipped year-on-year, while Adjusted EBITDA losses came in at $27m, a sharp increase from the $4.6m seen in the same period last year. Oatley pinned the losses on operating and employee costs.

Still the group expects to scale up in 2022, which should help production costs, along with lower than expected freight costs.

"Despite these temporary headwinds, we are continuing to drive conversion from dairy to the plant-based milk category supporting our mission toward a more sustainable food system," CEO Toni Petersson said. "As we scale our global operations, we may experience certain variability in our strong growth rates quarter-to-quarter, yet our confidence in the category opportunity and long-term trends and trajectory of our business have never been stronger."

“As we scale our global operations, we may experience certain variability in our strong growth rates quarter-to-quarter, yet our confidence in the category opportunity and long-term trends and trajectory of our business have never been stronger” - Oatly CEO Toni Petersson

 

 

What analysts are targeting for Oatly’s share price

Following the results, Truist maintained its Buy rating on Oatly, but trimmed its 12-month price target from $25 to $15 - a 57% upside on Tuesday’s close of $9.52. JPMorgan also cut its price target to $15, down from a previous $32. The biggest chop came from BofA Securities, down from $32 to $11.

Piper Sandler has a $14 price target to go with its Overweight rating. Analyst Michael Lavery said in a recent note that the price looks attractive and there was ‘strong sustainable topline growth from bringing production in-house’. According to Lavery, if Oatley can get ‘anything close to its original plans’, there could be more upside to estimates, as reported by The Fly.

RBC has a bullish $20 price target on Oatley to go with its Outperform rating - hitting this would see a frothy 110% upside on Tuesday’s close.

Whether Oatly can hit RBC’s target depends on if you view the current headwinds as temporary or a longer-term issue. On the face of it, Oatly is optimistic about its future and the surge in revenue suggests demand is there.

Among the analysts polled by Refinitiv, the average price target is $15, with the most bullish price target at $26 and the most bearish $11.

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