With the world facing a climate change crisis, can AppHarvest sustainably transform traditional farming, and is it a good investment?
Nov. 19, 2021
AppHarvest (NASDAQ: APPH) is an applied technology company building indoor farms and operates a 60-acre greenhouse facility in Appalachia. The company went public through a SPAC merger in 2021 and aims to tackle several pressing issues facing the agricultural industry. However, with its stock is down roughly 85% from its highs, is Appharvest a good buy today?
The bull case for AppHarvest:
AppHarvest is founder-led by CEO Jonathan Webb and has an experienced management team. Webb also owns a sizable stake in the business, which is a positive sign for investors.
Climate change is making it increasingly difficult for farmers to grow crops due to extreme weather. AppHarvest's controlled method reportedly uses 90% less water and only recycled water, with no soil erosion or chemicals or pesticides. This is both good for the environment and for selling to increasingly eco-friendly consumers.
In addition, a growing population means that food production will have to increase by 50% by 2050, according to the United Nations. AppHarvest intends to grow 30 times more food in a single controlled indoor acre than on a traditionally farmed acre.
Currently, the company only grows tomatoes and reported $543,000 in revenue on 1.5 million pounds of tomatoes in Q3 2021. The company is expanding and aims to have a leafy greens and berry facility operational by the end of 2022. Its location is within a day drive of 70% of the U.S. population, which helps reduce transportation costs, and it has partnered with retailers such as Kroger, Costco, and more to sell its products.
It has ambitious plans of having 12 farms by 2025, which should help drive cost savings due to scale. It also has its sight set on expanding internationally once it proves that it can execute domestically, where it believes that it can eventually sell to 90% of America.
The bear case for AppHarvest:
The company is burning cash with a net loss of $17.3 million in the latest quarter. The company has also faced issues with its tomato quality which resulted in a lower price and caused management to slash guidance from $20-$25 million to $7-$9 million for fiscal 2021. If it is to eventually turn a profit it will have to increase the quality along with successfully expanding.
On top of all this, the company is the subject of a class-action lawsuit alleging that AppHarvest produced false and/or misleading statements and failed to disclose adverse facts. While it is not uncommon for companies to face a lawsuit, it is a risk that investors should be aware of.
So, should I buy AppHarvest stock?:
Webb has stated that the company is in the first decade of what the management team views as a 30-year journey. A long-term approach and high-risk tolerance would be needed if one was to invest today. However, the stock is perhaps one to add to your watchlist rather than buying today due to the business being unproven.
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Quickfire round:
What is AppHarvest's market capitalization?
AppHarvests market capitalization is roughly $548 million.
Does AppHarvest pay a dividend?
No, nor does it intend on in the foreseeable future.
