Will the short sellers come for Oatly?

May 21, 2021, 2:28 PM UTC

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I’ll admit it: I like oat milk. I like it so much, I don’t really mind the questionable added sugar content. And I’m not alone: The product is facing a production shortage as we speak.

That said, at a nearly $12 billion valuation, Swedish oat milk maker Oatly will have no shortage of doubters. The skeptics’ main argument boils down to this: It’s expensive for a consumer packaged goods company, it has less than great margins, and it has a questionable moat. After going public on Thursday, the oat milk company’s market capitalization now sits at 25 times its revenue for the last 12 months ($477.2 million), and the company has gross margins of around 30%, which is low for the industry (while not apples to apples, Coca-Cola has gross margins of about 59%). Meanwhile, a multitude of other oat milk and alternative dairies are hitting store shelves. The road to overall profitability, in short, will not be an easy one. Oatly lost about $84.6 million in the 12 months ending in March.

It’s very similar to the argument that attracted the short sellers to another company focused on sustainability, Beyond Meat. “Beyond Meat should continue to be one of the more shorted stocks in the market,” wrote S3 Analytics’ Ihor Dusaniwsky in a May 10 note. According to the note, Beyond was the fourth-most-shorted stock in the U.S., with about $1.6 billion of short interest that day.

Still, both Beyond Meat and Oatly have strong brands and marketing in their corner. At least for Beyond Meat, its focus on sustainability (it argues that plant-based production methods are less costly to the environment than using animals) is one that has made it akin to Tesla in Dusaniwsky’s view—meaning belief and loyalty can play an outsized role in its stock price. On the other side of the trade, short sellers have been burned badly by ill-timed bets on Beyond Meat before, and yet, they continue trying. I would not be surprised to see similar volatility in Oatly as it matures in public markets.

INVESTORS PEEL AWAY FROM PLASTIC: Here’s an interesting stat from Refinitiv. Private equity investments in plastic packaging companies between 2016 to 2020 slowed by a third compared to the five-year period prior, to $1.3 billion. Yes, deals are still happening, as some plastic packaging is not so easily replaced by alternatives. (PE firm Lindsay Goldberg sold Schur Flexibles, a food and pharmaceuticals packaging maker, to B&C earlier this week.). But as governments around the world are cutting down on plastic, so too are investors.

Lucinda Shen
Twitter: @shenlucinda
Email: lucinda.shen@fortune.com


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