Since its IPO back in May, Oatly (NASDAQ: OTLY) shares have experienced a decline in price. Having been sat near $30 in June, do the shares, now priced at nearly half of that, present a good opportunity? The latest Q2 and half-year results released by the Swedish firm would certainly suggest so. However, its recent performance on the NASDAQ would seem to differ. Let’s take a closer look.
Reading through the half-year results for 2021, there were many positives to take away. Most notably, revenues rose nearly 60%, to over $285m, compared to half-year 2020. Q2 revenues also saw a 53% increase compared to 2020. For Q2 2021, revenues sat at $146m. This rise in revenues shows the continuous growth of the oat milk and non-dairy markets. Oatly earlier this year stated that its total addressable market is worth nearly $600bn. If it conquers more of this market, and revenues continue to grow, I think we could see a rise in the price of Oatly shares.
On top of this, other highlights from the results also provided a strong case for buying Oatly shares. April to June was a busy period for the oat-milk producer, it launching in new geographies such as Switzerland and Ireland. It also expanded its presence in China, growing on an existing partnership with McDonald’s, while also launching a new partnership with KFC. The business also saw its exclusive supply agreement with Starbucks in the US account for over a quarter of sales in Q2. As the market expands, Oatly is following suit, showing why now could be a great time for me to buy some shares before we witness a potential rise in price.
Oatly shares issues
My main issue with Oatly is that it is unprofitable. For Q2, net losses were $59.1m. As much as I understand this is more than likely due to expansion, with Oatly hinting at this through highlighting things such as a rise in R&D spending, it still makes me wary about investing.
Another major issue that surrounds the firm is competition. Oatly finds itself in an expanding market, yet as such, it will face challenges from other firms attempting to capitalise on this. An example is Nestlé, a firm that is continuously expanding the array of non-dairy products it offers.
The Q2 and half-year results provide optimism for Oatly. Despite the loss, it shows the firm is pumping money into its expansion. I think long term this will bear fruit. Within Q2, Oatly managed to create an assortment of partnerships, and the large amounts of revenue generated from its Starbucks agreement showed that this can pay off. What worries me is that as the market expands competition will increase. If Oatly fails to gain a solid market share, this will no doubt have an unflattering impact on the price of Oatly shares. With this said, I believe the firm is creating strong foundations through expansion from which it will eventually thrive as a result. As such, now I deem a good time for me to buy shares before we potentially see a large rise in the price.
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Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Starbucks. The Motley Fool UK has recommended Nestle and has recommended the following options: short October 2021 $120 calls on Starbucks. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.