Mission Produce currently trades at $11.93 per share and has shown little upside over the past six months, posting a middling return of 3.6%. The stock also fell short of the S&P 500’s 10.8% gain during that period.
Is there a buying opportunity in Mission Produce, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Mission Produce Will Underperform?
We don't have much confidence in Mission Produce. Here are three reasons we avoid AVO and a stock we'd rather own.
1. Fewer Distribution Channels Limit its Ceiling
With $1.34 billion in revenue over the past 12 months, Mission Produce is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers. On the bright side, it can grow faster because it has a longer list of untapped store chains to sell into.
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Mission Produce’s revenue to drop by 17%. This projection is underwhelming and implies its products will face some demand challenges.
3. Low Gross Margin Reveals Weak Structural Profitability
At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.
Mission Produce has bad unit economics for a consumer staples company, signaling it operates in a competitive market and lacks pricing power because its products can be substituted. As you can see below, it averaged a 12% gross margin over the last two years. That means Mission Produce paid its suppliers a lot of money ($88.05 for every $100 in revenue) to run its business.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Mission Produce, we’ll be cheering from the sidelines. With its shares lagging the market recently, the stock trades at 19.6× forward P/E (or $11.93 per share). This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment. We’d suggest looking at our favorite semiconductor picks and shovels play.
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