Since I’ve begun eating Tattooed Chef’s (NASDAQ:TTCF) meals, and since the company made an important deal with Kroger’s (NYSE:KR), I’ve become bullish on TTCF stock.
Also making me more upbeat is the fact that the stock dropped significantly following Wall Street’s overreaction to the company’s second-quarter revenue miss, and the reduction in its 2021 EBITDA guidance.
When it comes to evaluating food makers and restaurants, tasting is worth 10,000 words. Since I wrote my last column on TTCF stock in March, I’ve had the opportunity, thanks to Tattooed Chef’s Arrival at my local Target (NYSE:TGT), to try several of the company’s dishes.
Because of my dairy allergy, I only ate the company’s vegan dishes, including the Burrito Bowl, Buddha Bowl, Veggie Hemp Bowl and Pesto Harvest Bowl.
Those meals were quite tasty, with just the right amount of spice and very filling. The company’s riced cauliflower tasted almost as good as “regular” white rice.
I’m not a nutrition expert, but the meals seemed healthy, although the Burrito Bowl includes 53% of the Recommended Daily Allowance of saturated fat, likely because of its significant use of coconut oil, coconut syrup and molasses.
All of the meals cost less than $5 at Target.
An Important New Distribution Deal
In my previous column, I noted approvingly that multiple supermarket chains had either started selling Tattooed Chef’s meals initially or had ordered more of its products.
In July, the company announced a huge deal. It stated that its offerings would be sold in 1,800 Kroger’s around the country. As the nation’s second-largest supermarket chain after Walmart (NYSE:WMT), Kroger should enable the food maker to greatly increase its exposure to consumers and its sales.
As Tattooed Chef’s CEO, Sam Galletti said in a statement, the agreement shows that the company can “expand Tattooed Chef’s distribution into conventional grocery.”
In addition to Kroger and Target, the company’s products are also in Walmart, Publix, Albertson’s (NYSE:ACI), Whole Foods and many other supermarket chains.
“By the end of the third quarter, we expect our branded Tattooed Chef products will be in over 12,000 retail stores, exceeding our previous goal of 10,000 stores,” Galletti said.
Meanwhile, the company plans to “expand Tattooed Chef beyond the frozen aisle and into refrigerated and ambient products later this year or early next year,” Chief Creative Officer Sarah Galletti said.
I believe that this move will enable the company to add millennial consumers who don’t like frozen foods to its customer base.
Q2 Earnings Miss and Guidance Reduction
The company’s Q2 revenue rose 46% year-over-year to $50.72 million, but that was $3.33 million below analysts’ average outlook.
The food maker, however, left its previous 2021 revenue guidance of $235 million to $242 million unchanged, suggesting that the slight top-line miss was more due to postponements of distribution of its products to later quarters than weak demand.
The company lowered its fiscal 2021 EBITDA guidance to -$14 million to -$17 million, because of increased costs. Of course, many companies’ costs are rising more than expected these days, and it’s not unusual for a start-up company to have to ramp its costs unexpectedly.
TTCF stock is down about 10% from the point at which it was trading before its Q2 earnings report. It’s down nearly 20% versus the day on which my previous column on the shares was published.
The Bottom Line on TTCF Stock
Given the high quality and affordability of the company’s products, along with its success at penetrating large supermarket chains, its strong revenue growth and the high demand for healthy food, I believe that the $1.5 billion market capitalization of TTCF stock undervalues the company.
Consequently, I recommend that growth investors buy the company’s shares.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Plug Power, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.