Laird Superfood Grows Revenue But Faces Inflation Uncertainties

Summary

• Laird Superfood IPO'd in September 2020 and raised $58 million in gross proceeds.
• The firm manufactures plant-based and functional foods for consumers in the United States.
• LSF has grown revenue but faces inflationary and supply chain uncertainties as well as continuing to generate high operating losses.
• My short-term outlook on the stock is Neutral.
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Quick Take On Laird Superfood

Laird Superfood (NYSE:LSF) went public in September 2020, raising $58 million in gross proceeds in an IPO that was priced at $22.00 per share.

The firm designs and manufactures plant-based and functional food products in the United States.

The combination of inflation risks and the firm’s poor operating results since IPO leave me Neutral on its stock price at around $13.40.

Until management can produce a meaningful and sustained move toward operating breakeven while maintaining topline revenue growth, I don’t see a major upside catalyst to LSF.

Company

Sisters, Oregon-based Laird was founded to source and develop plant-based and functional food and beverage products for consumers in the U.S Natural, Organic and Functional Food and Beverages category.

Management is headed by Co-founder and CEO Paul Hodge Jr. and Co-founder Laird Hamilton.

Mr. Hodge previously founded GolfBoard and Mr. Hamilton is known for his 'accomplishments in big wave surfing.'

Below is a brief overview video of Laird's mission:

(Source)

The firm is creating what it calls 'an emerging platform within the rapidly expanding plant-based natural foods industry.’

The firm distributes its products through three channels:

• Online

• Wholesale

• Food Service

Laird sells online through its dedicated website and through Amazon, which 'in 2019 and the first six months of 2020, the online business made up 58.4% and 57.1% of [its] net sales, respectively.' (Source)

Market & Competition

According to a 2019 market research report by Food Business News, the U.S. market for organic food, of which Laird is in a subset of, reached an estimated $47.9 billion in 2018, growing by 5.9% in that year.

Overall, organic food sales accounted for 5.7% of total U.S. food sales.

Notably, non-food sales grew at nearly an 11% annual rate in 2018.

Also, organic fruits and vegetables made up more than a third, 36%, of all organic food sales in 2018.

Milk alternatives as well as plant-based foods have proven to be popular among millennials as they have begun moving away from livestock-based products for environmental reasons.

Major competitive or other industry participants include:

• Nestle (OTCPK:NSRGY)

• Danone (OTCQX:DANOY)

• TreeHouse Foods (THS)

• Califia Farms

• Coca-Cola (KO)

• PepsiCo (PEP)

• Body Armor

• Vita Coco (COCO)

Management says it believes its competition is primarily 'legacy products that are refined-sugar laden, highly processed, and have undecipherable ingredient lists. We believe consumers want more transparency and understanding of what they are putting in their bodies and are seeking less-processed alternatives.'

(Source)

Laird’s Recent Financial Performance

• Topline revenue by quarter has risen in recent quarters:

• Gross profit by quarter has produced growth in the past three quarters:

• Operating loss by quarter has generally increased except in Q3 2021:

• Loss per share (Diluted) has remained significant since the firm’s IPO:

(Source data for above GAAP financial charts)

In the past 12 months, LSF’s stock price has dropped 72.4 percent vs. the U.S. S&P 500 index’ rise of 27.5 percent, as the chart below indicates:

(Source)

Valuation Metrics For LSF

Below is a table of relevant capitalization and valuation figures for the company:

Measure	Amount
Market Capitalization	$118,070,000
Enterprise Value	$86,960,000
Price / Sales	3.34
Enterprise Value / Sales	2.49
Enterprise Value / EBITDA	-3.47
Free Cash Flow [TTM]	-$26,060,000
Revenue Growth Rate [TTM]	54.18%
Earnings Per Share	-$2.40

Click to enlarge

(Source)

As a reference, a relevant public comparable to LSF would be The Vita Coco Company (COCO); shown below is a comparison of their primary valuation metrics:

Metric	Vita Coco (COCO)	Laird Superfood (LSF)	Variance
Price / Sales	1.68	3.34	98.8%
Enterprise Value / Sales	1.72	2.49	44.8%
Enterprise Value / EBITDA	17.52	-3.47	-119.8%
Revenue Growth Rate	9.4%	54.2%	476.4%

Click to enlarge

(Source)

Commentary On Laird

In its last earnings call, covering Q3 2021’s results, management highlighted its key metric performance for its direct-to-consumer business [DTC], such as a ‘30% improvement in AOV (Average Order Value)’ and higher first and second retention rates.

Notably, recurring revenue for repeat and subscription orders now accounts for more than 67% of its DTC revenue.

Wholesale grocery sales improved while its refrigerated products saw a reduction in DC spoils.

Category growth appeared to be solid across most products with the exception of its Coffee, Tea & Hot Chocolate product category down due to ‘a large initial trial on club’ for the previous year’s same period.

The company is in the latter stages of searching for a new CEO with CPG experience while sharing the firm’s values.

As to its financial results, while topline revenue produced accelerating growth, GAAP operating losses and net loss remained significant, with little meaningful move toward operating breakeven over the last several quarters.

G&A expenses as a percentage of net sales rose, while sales and marketing expenses dropped due to lower stock-based compensation and personnel costs.

Regarding valuation, LSF is currently being valued by investors at significantly higher multiples than The Vita Coco Company, although LSF is growing topline revenue at a far higher rate, so the current valuation appears comparatively justified.

The primary risk to the company’s outlook is the rise in inflationary pressures, both on direct product costs as well as in transportation costs and potential delays.

Management says its transportation chains largely bypass the most impacted ports and that it is pursuing strategic pricing efforts to reduce the impact of inflation, at least in the short term.

The combination of inflation risks and the firm’s poor operating results since IPO leave me Neutral on its stock price at around $13.40.

Until management can produce a meaningful and sustained move toward operating breakeven while maintaining topline revenue growth, I don’t see a major upside catalyst to LSF.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This report is intended for educational purposes only and is not financial, legal or investment advice. The information referenced or contained herein may change, be in error, become outdated and irrelevant, or removed at any time without notice. You should perform your own research for your particular financial situation before making any decisions.

Comments

[Stephan Otzen]

Apparently, the markets now figures the potential of the new coffee pods product.

[bravochicoalerts]

There’s difference between wipe out on waves vs wipe out in plant based food business.

Bankruptcy , capital restructuring are possible scenarios in LSF narrative at this time now.

[bazooooka]

Looks cheap. Might nibble if falls more.

[weyls]

@bazooooka

Have you nibbled yet? I did, down about 40% already.

[bazooooka]

@weyls not yet. Take small bites and dollar cost avg in and when you finally get a hard bounce off the lows you should do okay. Sometimes they just plain sink and sink though.

[Wellington999]

The company is just too small..not enough cash for the mkt exposure they need...

[Growth Stock Prospector]

They need to announce a ceo hire and a timetable for the shelf stable creamer. Until then it’s un investable for tutes.

[Ralf Anders]

As soon as management can produce a meaningful and sustained move toward operating breakeven while maintaining topline revenue growth you won't get the stock for 13.40$ anymore.