Should You Buy the Dip in AquaBounty Technologies?
Leading aquaculture company AquaBounty's (AQB) shares declined in price last Friday after the company announced discounted pricing for its secondary offering of shares. Furthermore, the stock has slumped over the...
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Leading aquaculture company AquaBounty's (AQB) shares declined in price last Friday after the company announced discounted pricing for its secondary offering of shares. Furthermore, the stock has slumped over the past year and is now trading near its 52-week low. Also, considering the company's negative cash flows, is the stock a buy on its recent dip? Read on.
AquaBounty Technologies, Inc. (AQB) in Maynard, Mass., is a leading aquaculture company that is focused on delivering game-changing solutions that solve global problems. Its primary product is AquAdvantage Salmon, a bioengineered Atlantic salmon for human consumption. The stock is currently trading well below its 50-day and 200-day moving averages, near its 52-week low of $2.32. The shares plunged last Friday after AQB revealed the pricing of a secondary stock offering.
AQB priced a public offering of 11,200,000 shares of common stock at $2.10 per share, representing an almost 33% discount to its $3.12 closing price on November 18, 2021. In addition, the issue's underwriters have been granted a 30-day option to buy up to 1.6 million additional shares. It should be noted that AQB is not selling any shares and will not receive any proceeds from the shares offered by stockholders.
Nevertheless, the stock still looks overvalued at its current price. In terms of forward Price/Sales, AQB is currently trading at 117.79x, which is 1,527.4% higher than the 7.24x industry average.
Here is what could shape AQB's performance in the near term:
Top Line Growth Does Not Translate into Bottom-Line Improvement
AQB's total revenues increased 572% year-over-year to $455,397 in its fiscal third quarter, ended September 30. However, it missed consensus estimates by 34.7%. In addition, its total cost and expenses increased substantially year-over-year to $7.27 million.
AQB's operating loss stood at $6.81 million, up 88.6% from the same period last year, while its net loss grew 88.1% from its year-ago value to $6.86 million. The company's net loss per share came in at $0.10, versus the $0.07 consensus estimate, reflecting a negative 42.9% earnings surprise. Also, its trailing-12-months net operating cash flow and levered cash flow came in at negative $18.81 million and $16.62 million, respectively.
Near-Term Prospect Looks Bleak
AQB provided updates on the progress of its planned large-scale salmon farm in Pioneer, Ohio. The company reported in-line improvement in design engineering, detailed construction cost estimates, and debt financing. Also, the company launched an Environmental, Social, and Governance (ESG) integrated reporting initiative using the Sustainability Accounting Standards Board (SASB) as its primary reporting standard.
However, considering AQB's weak bottom line and poor profitability, AQB could struggle to meet its capacity targets. Moreover, its negative operating cash flows are a definite concern.
POWR Ratings Reflect This Bleak Prospects
AQB has an overall F rating, which translates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an F grade for Stability, consistent with its 1.06 beta.
AQB has an F grade for Value. Its stretched valuations justify this grade.
Of the 70 stocks in the D-rated Consumer Goods industry, AQB is ranked #68.
Beyond what I have stated above, one can also view AQB's grades for Sentiment, Growth, Momentum, and Quality here.
View the top-rated stocks in the Consumer Goods industry here.
AQB is a well-known player in the aquaculture space. With a significant focus on improving productivity in the commercial aquaculture industry, the company is expected to generate solid returns in the long run. However, its near-term prospects look bleak, considering its weak bottom line and stretched valuation. Furthermore, analysts expect the company's EPS to remain negative at least until next year. Thus, we think the stock is best avoided now.
How Does AquaBounty Technologies, Inc. (AQB) Stack Up Against its Peers?
While AQB has an overall POWR Rating of F, one might want to consider investing in the Consumer Goods following stocks with an A (Strong Buy) rating: Mannatech, Incorporated (MTEX) and Société BIC SA (BICEY).
AQB shares fell $0.10 (-3.58%) in premarket trading Friday. Year-to-date, AQB has declined -68.15%, versus a 26.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree's keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master's degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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