AppHarvest SHORT Thesis Confirmed
Why AppHarvest saw their stock drop 40% after reporting earnings
Earnings Update - AppHarvest
On July 23rd, I published a SHORT thesis on AppHarvest APPH 0.00%↑, an indoor farming company based in Kentucky. You can find the article here.
My SHORT thesis was simple and can be summed up in a few points.
The company is too new to validate financial projections when they only have one farm up and operational and still needing to raise money for additional farms
Unit economics look good on paper but hiccups frequently occur and 4-wall EBITDA cannot be validated until kinks are worked out
Risks associated with energy consumption (directly affecting operating leverage)
It’s still a premium product and cannot be certain of price-conscious consumers willing to pay up for a highly commoditized product
ESG play is nice, but it’s not solving world hunger anytime soon
Sounds simple enough and as of this morning, the thesis was correct and as of this very moment, the stock is down 39.5%.
Earnings Takeaways
Delivered net sales of $3.1 million (vs. $5.9m analyst estimate) on 8.6 million pounds of tomatoes sold, concluding the abbreviated 2020 planting season
Company reaffirms long-term 2025 outlook but reduces 2021 outlook
Recorded a net loss of $32.0 million and non-GAAP Adjusted EBITDA loss of $22.6 million in the second quarter of 2021, as compared to a net loss and non-GAAP Adjusted EBITDA loss of $1.6 million in the second quarter of 2020, when the company was still pre-production
The company adjusted its full-year 2021 net sales outlook to the range of $7 million to $9 million from a prior range of $20 million to $25 million
The company also updated its full-year 2021 outlook for Adjusted EBITDA to the range of a loss of $70 million to $75 million from a prior range of a loss of $48 million to $52 million, driven primarily by operational challenges encountered in the abbreviated initial growing season and the decision to dedicate a portion of the farm to the noted strategic investments
Conclusion
AppHarvest is a good company solving real problems in a way that we will need to scale drastically in the future for many reasons. But just because I like the company, does not mean I like the stock.
AppHarvest will need to really show it can scale its business the way it has planned to and just because the company has reaffirmed its 2025E projections that don’t mean anything to me. Frankly, they are just too far down the road to hold much water.
They have delivered on raising non-dilutive financing, a plus, so hopefully, the rest of their initiatives will take hold. After the 40% drop in price and covering SHORT position, I’m tempted to take a LONG position on the company in a purely speculative manner.
The company will do great things and I’m eager to see where they go and quite happy that the SHORT thesis was confirmed.