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Quick summary: Mission Produce is a relatively new public company focused on the avocado market and now expanding its operational expertise to mangoes. The stock has had a good run since its debut and will now need to show continued growth overseas and success with diversifying its business lines.
Mission Produce: Key Facts & Data
- CEO: Steve Barnard
- Stock ticker: AVO
- Location: Oxnard, CA, USA
- Sector: Agricultural Services
- Exchange: NASDAQ Composite
- Market Cap: $1.44B (small-cap)
- Investor relations link: Investor Relations | Mission Produce, Inc.
- Robinhood categories: California, Food & Drink
What is Mission Produce?
In the simplest terms, Mission Produce, Inc. is an avocado company. Hence its stock ticker, AVO. However, there is actually a lot of nuance involved in being an avocado company. Are they growers? Distributors? Retailers? Wholesalers? All of the above? Let’s check out how the company describes itself on its investor relations website, and then analyze the language:
Mission Produce is the world’s most advanced avocado network. For more than 35 years, Mission Produce has been recognized as the leader in the worldwide avocado business, sourcing, producing and distributing fresh avocados, servicing retail, wholesale and foodservice customers in over 25 countries. The vertically integrated Company owns and operates four state-of-the-art avocado packing facilities in key growing locations globally including California, Mexico & Peru and has additional sourcing capabilities in Chile, Colombia, Dominican Republic, Guatemala, New Zealand, & South Africa. Mission’s global distribution network includes eleven forward distribution centers in North America, China & Europe that offer value-added services such as ripening, bagging, custom packing and logistical management. In addition, Mission owns over 10,000 acres globally, allowing for diversified sourcing and access to complementary growing seasons, while ensuring its customers receive the highest quality fruit possible.
Mission Produce Inc., Investor Relations
There’s a lot to unpack here, and that’s because Mission Produce is involved in almost every angle of the avocado business. The company both sources avocados from farms across the Western Hemisphere, while also growing their own avocados on four of their own farms, in diverse locations. By owning their own farms, Mission can be said to be “vertically integrated,” which means owning multiple phases of production that would normally be handled by two different companies. Vertically integrated companies, in theory, can better control their costs and more effectively manage their supply chain, which is particularly important for a business focused on a single agricultural crop.
On the distribution side, Mission Produce is global, selling their avocados to both retail and wholesale customers in North America, Asia and Europe. The company has been around for 35 years and is considered among the leaders in avocado sourcing and distribution.
That all sounds fine, but how does this translate to the stock? Let’s take a closer look below.
Mission Produce Stock History
While Mission Produce Inc. has been around for more than three decades, its stock is still a baby, trading on the NASDAQ Composite for less than a year (IPO in October, 2020).
Trading under the ticker AVO, the stock has had a brief, but quite wonderful life. The stock has gained more than 66% in less than a year as a public company. One important note, though, is that the lion’s share of those gains happened within the first few months of the company’s IPO at the tail-end of 2020 and into February 2021. In the past six months (March to August 2021), the stock has been virtually flat, trading around $20 per share.
That naturally begs the question: what is Mission Produce’s strategy to lift the share price higher? And what catalysts are realistically on the horizon that could benefit AVO shareholders? Below we will look at media and analyst takes on the stock as well as statements from the company’s management to help you form the basis of further research.
Mission Produce: Strategy & Potential Catalysts
According to a recent bullish article in The Wall Street Journal, Mission Produce has a number of potential catalysts that could help improve company performance and push the stock higher over time.
- Improving demand for avocados – After a record year in 2019 for avocado consumption in the US, the company’s primary end market, consumption fell in 2020, at least partly due to the catastrophic effect of the pandemic on the restaurant industry. With economies reopening and restaurants doing more in-person business it’s reasonable to expect avocado consumption again to be on the upswing.
- Increased vertical integration – Currently the company only sources 11% of its avocados from its own farms. By focusing on sourcing more avocados from its own farms it will potentially be able to control its costs and better protect margins, even if the market softens overall.
- International expansion – As the company has mentioned above, it has distribution centers in China and Europe. That’s not the same as saying everyone in China, for example, has a strong taste for avocados like we do in America. While multiple sources suggest the avocado remains a niche food item in China, the growth has been impressive, with Mission Produce CEO Steve Barnard telling CNBC in 2018 that demand “appears to double every year.” Considering the enormous market of Chinese consumers, if this growth can be sustained it certainly could be a future catalyst for the company. The growth of avocado imports in Europe, meanwhile have roughly matched the trend in the US, with 2019 among the strongest year ever for imports in Euro terms while the average European consumes only one third of what the average American does, suggesting much more room for growth.
- Diversifying product offerings – Mission has told investors it plans to bring its expertise with avocados to the mango market, helping to diversify its offerings and potentially reduce the risk of relying on just one agricultural food item.
AVO Stock Analysis
It’s clear that investors have bought into some of the potential catalysts above when factoring in the stock’s extremely strong performance since its IPO as well as forward P/E ratio of nearly 28, which is notably above the S&P 500. Below we round up some recent published commentary on AVO stock for your consideration. Keep in mind that this analysis may already be partially out of date by the time you read it and won’t factor in late breaking company news or other market moving events. Always do your own research and don’t rely on a single piece of analysis when making investment decisions.
- Thomas Palmer from JP Morgan, after initially presenting Mission Produce as one of three stocks with double digit upside, has since downgraded the stock to “hold” after his initial forecast was proven correct. According to Tipranks, he maintains a $22 price target on the stock, which would mean a slight upside of about 6% from where it trades today at the time of writing.
- Similarly, Citigroup analyst Sergio Matsumoto downgraded the stock to neutral from buy in March 2021, in the wake of its 35.5% YTD gain at the time, arguing that much of the good news was baked into the price of the stock. The analyst remains upbeat on the company’s prospects long-term, including a new processing plant in Laredo, Texas which will be the largest of its kind in the US.
- The Value Investor on Seeking Alpha, despite crediting AVO with an ability to maintain strong margins, wrote in May 2021: “I have lost long appetite at $20 here given the fundamentals.”
- As previously mentioned, Jacky Wong from The Wall Street Journal made Mission Produce his pick for the publication’s “Heard on the Street” stock picking contest. The author points to promising trends in the second half of the fiscal year including a firmer market for avocados and higher revenues and profits for Mission Produce in particular.
- Reviewing ownership of the stock by actively managed mutual funds is another way of gauging interest, as portfolio managers of mutual funds are risking their own shareholders’ money on the stock and not just publishing an opinion. According to the latest published Morningstar data, a number of small-cap mutual funds owned significant shares of AVO stock, including: Old West Small Cap (2.83% of its fund), Stephens Small Cap Growth (1.22%), Kennedy Small Cap Core Fund (1.17%) and Touchstone VST Small Company Fund (1.17%). It’s clear there is some level of belief among professional investors in this stock.
Mission Produce has had a healthy run as a stock in the little less than a year it has been publicly listed. The question for investors is if the many potential catalysts listed above will translate into higher profits and justify the current price of the stock, which some analysts suggest is currently expensive. The next clue to answering this question will be the company’s earnings report on September 13th, 2021. We will update this article to reflect any major news as soon as we have time to digest what it means for AVO’s shareholders.