We came across a bullish thesis on Oatly Group AB (OTLY) on wallstreetbets Subreddit Page by boolean__. In this article, we will summarize the bulls’ thesis on OTLY. Oatly Group AB (OTLY)’s share was trading at $0.712 as of Dec 9th.
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Oatly, a Swedish oat milk giant with $783 million in revenue last year, has faced a dramatic decline since its IPO in 2021, when shares peaked near $29 before plunging to a current price of $0.75. The fall, while understandable due to Oatly’s lack of profitability, underscores deeper issues in cost management and efficiency. However, the appointment of Jean-Christophe Flatin, a seasoned executive from Mars Inc., as CEO in 2023 brings renewed hope for a turnaround. Flatin’s leadership experience in a similar industry could be pivotal in addressing Oatly’s longstanding operational inefficiencies.
Oatly’s path to recovery appears anchored in better cost controls rather than revenue growth, which has been steady. Revenue is projected to rise from $830 million in 2024 to $952 million by 2026. The key challenge has been the exorbitant cost of goods sold (COGS), which reached 88% in 2023. Despite the high costs, raw oats, a primary input, remain inexpensive, suggesting significant room for efficiency gains. Oatly’s decision to cancel a costly factory expansion in favor of adopting innovative enzymes that reduce energy and water use highlights the potential for substantial cost reductions. These measures, coupled with a normalization of oat prices, could position the company for improved profitability.
The broader plant-based milk market, with a 9% CAGR through 2030, remains a growth opportunity for Oatly. Additionally, the oat fiber byproduct, previously given away for energy production, could become a profit driver as demand for fiber grows. Oatly’s strong environmental sustainability narrative bolsters its brand, helping it withstand criticism over sugar content and the use of rapeseed oil. The launch of the “Oatly Super Basic” line demonstrates its responsiveness to consumer health concerns, ensuring continued loyalty in a competitive market.
Despite the proliferation of competing oat milk products, Oatly has maintained its market leadership, largely due to its superior taste and loyal customer base. Partnerships with Starbucks and a recent deal with McDonald’s Austria reflect growing demand. The removal of price barriers, such as Starbucks making plant-based milk free, could further boost sales.
Oatly’s $441 million in debt, while a concern for some, reflects strategic investments in efficiency rather than equity dilution. Speculation about a buyout, with valuations between $2 and $4 per share, remains plausible given Oatly’s strong brand and market dominance. As operational improvements take hold and profitability looms in 2026, a fair valuation of $3 per share seems attainable, offering substantial upside for long-term investors.
Oatly Group AB (OTLY) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 12 hedge fund portfolios held OTLY at the end of the third quarter which was 14 in the previous quarter. While we acknowledge the risk and potential of OTLY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than OTLY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.