Oakley Stock is up 64 in the last five days. In this video, we're going to talk about whether or not it makes sense to invest in Oatley stock a company that manufactures oat milk. Do keep in mind that while I'm a licensed financial advisor, this video is not personalized. Financial Advice for you.

and even though I run an ETF and I have a real estate startup, I'm all for providing perspective. but I'm not being paid by you for your own personal financial advice. so any trades you make are on you. With that said, remember that oddly is part of one of nearly 600 companies that ipo'd in 2022 or 2021.

One in four of those companies traded for less than two dollars per share in December And remember when you trade under a buck a share for a while, you risk getting delisted and so Olay was knocking on that door. They fell all the way down to a buck 28 from a high of 29. Yikes. But now the Stock's up 15 on the day.

and again, it's up 64 in just the last five days. So what happened and who the heck is this and what risks are there if you were to invest in this company, Well, Odley is a Swedish oat milk manufacturer. Yes, oat milk. So there's Dairy which is nearly a 300 billion dollar a year industry.

Then there's almond milk, which is like a 5 billion dollar a year industry. Still pretty impressive. Then there's oat milk, which is like a 550 million dollar a year industry. And then there's only, which takes about a 28 share of that market.

So you can see this is like in terms of what they're producing, right? Oat milk, you know, boasts some cool benefits. low calcium. Sure, it's a little bit higher in carbs. It's got more unsaturated fats than fatty fats compared to Dairy.

It's got some good B vitamins in there, although the B12 is added, so some people aren't super happy about that because generally the B12 is added in manufacturing since B12 typically comes from salmon, tuna, sardines, liver, or shellfish milk, eggs and basically not oats, right? And some argue that there could be a lot of sugar. but then again, so could there be an almond milk? And if you're allergic to almonds, maybe you just need to have oat milk if you actually want to be able to have your Fruity Pebbles Which kind of defeats the purpose potentially of being healthy. But anyway, why is the stock rocketing? And is there a fundamental reason to believe that the rocketing could continue? Well, Odley announced that they're transferring their leases and production capacity from their two facilities or two of their facilities in the United States one in Ogden Utah and one in Fort Worth Texas two a Canadian manufacturer called Yaya Foods. The goal is to fix their screw-ups.

Basically, they have had a lot of production shortages for their oat milk product and they can't get their act together when it comes to manufacturing and don't take my word for it you could look directly at their very own reports and see that they tell you exactly the same thing. Okay, they have challenges that they're facing at their manufacturing facilities. Here's their last earnings call. They say it themselves.

Challenges at our facility are impacting our margins and they don't even have great margins because this is a company that loses money. But we'll talk more about fundamentals in just a moment. It's just worth noting that Contract Manufacturing Is Not Unusual It's something that Nvidia does with their chips. It's something that Neo does with their cards and Apple does with their iPhones and a lot of their products.

So it's not unusual to design something to package something and and to basically do everything related to the user experience, but not be part of manufacturing. Manufacturing is very hard. Scaling manufacturing is very hard. So just because this company sucks at manufacturing doesn't mean that oat milk is a bad product or that Oatley is a Bad Company.

It just means that you're selling a niche product and now you're giving up even more margin. And that's probably the biggest concern that I have for the company. Because this is a company that already doesn't have any margin, it's not a good situation. In fact, all you have to do is Hop on over to their financial statements.

Here you'll notice that on 183 million dollars of sales they have costs of goods sold of 178 million Which means they're gross margin is less than three percent. Now look, last year, things were a lot better. Their cost of goods sold were only 126 million out of 171.. that gives them a gross profit margin of closer to 26 percent, which that's reasonable.

You could actually potentially make money when you're at a 26 gross profit margin. They're nine months fared. Let's see here, they're nine months 527 fared a little bit better at about a nine percent profit margin. But that's actually concerning because it suggests that they were at nine percent here 26 percent here.

and when they get to the three months. So in other words, the most recent quarter, they're basically at no margin three percent. So in other words, things are getting worse and not better. And now they've gotten so bad that they're throwing in the towel completely and going to contract manufacturing.

Downside with this is, even though somebody else might be able to come in and situate this company and pay them about 70 million dollars for these rights, margin probably won't be as good as it ever potentially could be if they did their own manufacturing. Because guess what, A contract manufacturer wants to make money. and now maybe this works. If you have a very unique product like the Apple iPhone which is a very high margin product or a car like Neo or an Nvidia chip which everybody wants to get their hands on, you know, a new 4000 series Nvidia chip right? Everybody wants their hands on these.

It works. Maybe if you have pricing power, but I Hate to say it. food is the last place I Think companies have pricing power. consider for example tattooed Chef in the plant-based Food Market Their prices have become so low and their margin has become so low and the stock has plummeted so low that they have essentially left the exclusive nature of plant-based Foods only and moved into meat.

Yes, a plant-based food manufacturer has moved into selling meat because it's hard to have pricing power at high margins in food when food is a very, very competitive industry and is one where people's willingness to pay a lot more money compared to other available substitutes is very, very low. Consider that the dairy manufacturer, like the dairy industry, is massively subsidized in America Like you already might think, milk is expensive, it's massively subsidized just to get it to that level. It's crazy. Now here are some other fundamentals to look at.

If this billion dollar company is a company that you want to huddle for the long term, you have to be prepared to consider their growth story. There isn't that much growth for a niche product, you would want to see explosive growth. Even if you take out foreign currency issues and adjustments, Their company on average across the world only grew revenues by about 16.7 percent. Now that's great, but for a company that's still not positive Net income positive? That's not too exciting.

In fact, not only are they not net income positive, but they're burning. If we jump over to their cash flow statement, they're They burned about 215 million dollars in the last nine months. Hey, if you want more of these types of analysis videos, make sure you join me in the course member live streams where I regularly conduct analysis like this that I don't post publicly to the channel. So if you get videos like this publicly and you want more of them, make sure you check out the programs on building your wealth.

Link down below where you can join me in the course member live streams every day the market is open. The problem with that is if you go to their balance sheet, they've only got 105 million dollars of cash. they've got current liability is that when you consider cash in their receivables basically get wiped out and their inventory barely covers about a quarter of loss. Maybe slightly more than a quarter of loss depending on how you look at it and what your projections are.

But this is a company that needs money. so think about all the pieces of the puzzle together. Here, you have a company that needs cash. so they got a little cash infusion by selling their manufacturing right, which gives up the potential for higher margins in the future.

Uh, now. maybe it'll work out again. It works out for companies like Apple Nvidia and Neo but they're selling a high margin product and a product that a lot of people want. Oat milk is a niche product and it's limited by your competitors prices like dairy or almond milk, which are industries that are heavily subsidized in.

America So in my opinion, while there might be a trading opportunity here, I'm not the biggest fan of being a fundamental investor in the Swedish company. Oatley Now I do not have any short positions against this company and I presently don't have any long positions in this company. At the time of this recording I have no intentions of opening any kind of positions and so personally I just wanted to share this perspective that I think this is a risky company. Either way, you slice it and I personally would rather get some financial statements in line to see.

hey, how is their contract manufacturing relationship actually going to help lead this company to profitability at this point? I'd probably rather be looking at a small count like Matterport than a company like Oatley because at least Matterport I believe has at least some degree of pricing power. Anyway, thanks so much for watching. We'll see in the next one. bye.