Why Tattooed Chef Stock Jumped 19% at the Open Today

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What happened

Shares of plant-based food maker Tattooed Chef (NASDAQ:TTCF) rose as much as 19% in the first hour or so on Wednesday. By 10:30 a.m. ET, that gain had been pared a little, to about 14%, but was still notable. The big news was the company’s third-quarter 2021 earnings, which were released after the close on Tuesday.

So what

Tattooed Chef makes plant-based products like riced cauliflower, zucchini spirals, cauliflower pizza crusts, and a variety of “bowls.” This puts the company right in the middle of an up-and-coming “healthy” food category. So it’s little wonder that third-quarter 2021 sales increased 43.5% year over year.

The $17.8 million revenue advance was split between branded products, where sales rose roughly $12.7 million, and private label, where sales increased around $5 million. This shows that the Tattooed Chef brand is gaining scale, which is likely why investors were excited.

Image source: Getty Images.

The problem is that Tattooed Chef is still a relatively small growth-oriented company with a market cap around $1.5 billion. On the bottom line, the food maker lost $8.2 million, or $0.10 per share, compared to a loss of $3.2 million in the year-ago third quarter, or $0.11 per share.

It went public via a blank check company in October last year, so there’s a little noise in the numbers, particularly on a per-share basis. One reason for the loss was that spending on branding and other costs in getting a new product onto grocery store shelves has been high. This is why larger and more-established branded food companies have an advantage over upstarts, since they usually have bigger advertising budgets and more clout with stores.

Such costs aren’t likely to go away anytime soon, so investors should expect the losses here to continue while Tattooed Chef keeps its focus on growth. That might bother a glass-half-empty type of investor, who would probably be better off owning one of the larger players in the food space.

Now what

At the end of the day, Tattooed Chef has some interesting products that key in on current food trends. But it is small and still growing, which isn’t exactly good for the profit outlook even as it seems likely to keep expanding its sales. In fact, you could easily argue that the company looks like it would make a good division at a larger food company.

That’s not to suggest that it can’t grow into a more significant competitor all on its own, but just that in the food sector, it is up against stiff competition and faces an uphill climb despite (to its credit) the strong sales growth it is putting up.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.