TTCF Stock Jumps on Walmart Deal: Is Tattooed Chef a Buy?

Tattooed Chef Inc (NASDAQ: TTCF[1]) stock is on the rise on Wednesday morning, climbing by more than 10% after the company signed a distribution agreement with Walmart (NYSE: WMT[2]). The deal will increase the brand’s frozen shelf presence from 5 to 13 stock keeping units and expand the availability of these 13 stock keeping units from an average of 300 Walmart stores to an average of 2,000 Walmart stores. Tattooed Chef Inc also announced the simultaneous signing and closing of an asset purchase agreement with Desert Premium Group and the signing of a new lease agreement that will add approximately 80,000 square feet of manufacturing capacity.

But is TTCF stock a good investment?

What is Tattooed Chef Inc?

Tattooed Chef is a plant-based food company, produces and sells a portfolio of frozen foods. It supplies plant-based products to retailers in the United States. The company offers ready-to-cook bowls, zucchini spirals, riced cauliflower, acai and smoothie bowls, cauliflower crust pizza and plant-based burgers.

Its products are available in private label and Tattooed Chef brand name in the frozen food section of retail food stores. Tattooed Chef is headquartered in Paramount, California.

TTCF Stock Financials

The company’s most recent results[3], which covered its second quarter, saw revenue increase by 15.6% to £58.1m. Its branded products reflected an approximate £6.0m reduction in club sales year over year due to timing of promotions in 2021 versus 2022.

Excluding this impact, branded product sales in the 2022 second quarter increased 21.4% from the 2021 second quarter. Net loss in the period was £26.4m, or £0.32 per diluted share, compared to a net loss of £57.5m, or £0.70 per diluted share, in the second quarter of 2021. This net loss, albeit reduced in size since the same period 12 months prior, came as operating expenses increased 48.3% to £24.3m.

The business attributed this to ongoing investments in the Tattooed Chef brand, sales channel expansion, and corporate functions to support public company reporting requirements. Morningstar data has the company’s price to sales ratio as 2.10, while price to book ratio is 2.90. These are both higher than CSIMarket averages for the food processing industry, which stood at 1.04 and 2.51 respectively, indicating that the stock could be overpriced. 

The company did not release a dividend[4] to shareholders.

TTCF Growth Potential

The company’s growth potential appears tied to a fundamental shift in eating preferences that has not escaped the notice of Tattooed Chef Inc. Data from the Food Marketing Institute shows that the number of people who identified as vegan, vegetarian, flexitarian or something else other than a meat eater increased from 15% to 29% between 2019 and 2021. This indicates a huge change in eating habits and a significant opportunity for companies like Tattooed Chef Inc.

That’s why the business has increased its footprint enormously, with its number of locations rising from 4,000 to 14,000 between 2020 and 2021, while partnerships with retailers increased from 4 to 160 over the same period. The company has also expanded outside the United States, with manufacturing space in Italy opening in 2015. With this in mind, the business aims to achieve annual sales of £600m by 2025.

TTCF Investment Risks

The primary risk the business faces is margin pressure due to the nature of the food products industry.

Increases in costs could force the company to up its prices, a potentially damaging move in an environment where consumers are already feeling the squeeze from a cost-of-living crisis.  Indeed, gross margins are already under pressure at the business. TTCF’s latest earnings[5] saw the company lower full year gross margin outlook from 10-12% to 8-10%, citing continued cost inflationary pressures and the timeline for implementation of automation initiatives at our facilities.

The company also has a history of missing financial targets and faces notable competition from more recognizable names like Beyond Meat (NASDAQ: BYND[6]). Additionally, more established names in the food production industry could turn their attention to the meat-free space as consumer appetites changes, placing more pressure on a smaller business like TTCF.

Is TTCF Stock a Good Investment?

The last couple of years have seen Tattooed Chef Inc achieve impressive growth and its new agreement with Walmart looks like an impressive coup. The business is well-placed to continue capitalizing on the continued shift away from meat eating, a trend which doesn’t appear to be running out of steam.

Revenues are on the rise and losses are diminishing, but the business’ margins could prove to be fragile. This isn’t ideal for a business in a business during a time of economic strife, so an investment would carry some risk. Even so, investors looking to take advantage of the swing towards meat-free living could do worse than backing TTCF stock.

Current consensus from analysts polled by CNNMoney is that the stock has a Hold rating[7], with a median target price of £9.00 per share, compared to the share price of £7.19 at the time of writing.

References

  1. ^ NASDAQ: TTCF (www.valuethemarkets.com)
  2. ^ NYSE: WMT (www.valuethemarkets.com)
  3. ^ results (ir.tattooedchef.com)
  4. ^ dividend (www.valuethemarkets.com)
  5. ^ earnings (www.valuethemarkets.com)
  6. ^ NASDAQ: BYND (www.valuethemarkets.com)
  7. ^ rating (www.valuethemarkets.com)