It’s six weeks since Oatly Group (NASDAQ: OTLY) shares began trading on New York’s NASDAQ index. And today, the Swedish oat milk producer continues to trade well north of its initial public offering (IPO) price of $17 per share.
The Oatly share price soared as high as $29 at one point in the middle of June. However, the US food share has reversed sharply from those highs and closed last week at $23.09 per share. Is now a great dip-buying opportunity?
Why Oatly’s share price could soar
There are several reasons why I think the Oatly share price could soar again. These include:
#1: The explosion in dairy-free demand. Oatly is perhaps best-known for its line of pourable milk alternatives but it also provides other non-milk products like spreads, yoghurts and ice cream. This is a surging market and The Vegan Society estimates the total non-dairy market will be worth a staggering $41.1bn by 2026. This compares with $16.1bn in 2019.
#2: Strong sales momentum. For the time being at least Oatly is making the most of this ballooning market and sales are rising strongly. In the first three months of 2021, total revenues came in north of $140m. This was up an impressive 66% from 2020’s first quarter.
Cause for concern
Demand for dairy-free is booming as consumers consider issues like animal welfare, carbon footprints and adopting healthier lifestyles in greater numbers. But rocketing sales growth means that amount of competition Oatly faces is also increasing rapidly.
It’s not just other non-dairy specialists like Alpro which this UK share has to worry about. The world’s largest food manufacturers, including Coca-Cola, Mars, Unilever and Danone to name just a handful, are ramping up their dairy-free food ranges. And they have the clout to potentially squash relative tiddlers like Oatly with their colossal R&D budgets and immense marketing spend.
Should I buy Oatly shares?
I also have reservations about Oatly because oat-based products command such a small slice of the overall dairy-free market. Combined, soy milk and almond milk accounts for four-fifths of this niche food sector. So the likes of Oatly may not be able to make the most of the consumer switch to non-animal-based products.
Indeed, Hargreaves Lansdown notes that “more shoppers seem to want an alternative to soya milk, and oat milk is revered for being high in fibre and vitamins.” But the FTSE 100 firm adds that Oatly’s portfolio of products “has higher levels of calories and carbohydrates compared to plant based milk alternatives.”
People who switch from traditional milk products to dairy-free on health grounds might thus be more tempted to buy other plant-based foods.
It’s clear that the Oatly share price has plenty of potential. But, in my opinion, this firm — which isn’t expected to turn a profit for the next few years at least as it embarks on aggressive expansion — also bears lots of risk. I’d rather invest in other US (and UK) shares today.