SunOpta Stock Is Starting to Get Ridiculously Oversold

A top consumer-defensive stock trades at a deep discount because of weak financial results.

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Economists believe the decision of the Bank of Canada to pause interest rate hikes this month isn’t a welcome relief to Canadians. Governor Tiff Maclem said the governing council could still raise the policy rate if inflationary pressures persist. The central bank expects inflation to flare up in the coming months before declining again.

People and consumers must endure the pain of inflation and rising interest rates until previous hikes take effect. Meanwhile, the stock market continues to experience broad-based weakness because of economic uncertainty and a potential recession. The TSX started strong in September 2023 but has lost 413.32 points (2%) since.

Many stocks had sharp declines this year, but SunOpta (TSX:SOY) is starting to get ridiculously oversold. At $5.25 per share, the year-to-date loss is 53.87%, while the trailing one-year price return is 59.02%. Is the small-cap, consumer-defensive stock worth buying at this bargain price?

Business overview

SunOpta develops and manufactures sustainable plant-based foods and ingredients. This $606.94 million global food and mineral company offers non-GMO (genetically modified organisms) and organic food products. The primary objective is to make people healthier through its plant-based foods & beverages, organic ingredients, and organic foods & beverages.

According to management, besides the attractive industry and end markets, the total addressable market (TAM) is enormous. Two core foods and beverages business segments (plant based and fruit based) contribute to revenues and profits. The 10 plants in North America give SunOpta operational capabilities and competencies.

SunOpta’s technical expertise, complex manufacturing at scale, and integrated food solutions are competitive advantages. Its three platforms with a large, growing TAM and outsized growth potential are plant-based food, snacks, and nutritional beverages.

Selloff

SunOpta’s stock price has decreased substantially, perhaps due to poor financial results. For the first half of 2023, total revenues declined 10.8% year over year to US$431.7 million. Notably, the company incurred a net loss of US$17.5 million compared to the US$6 million net earnings in the same period in 2022.

In the second quarter (Q2) of 2023 alone, net loss reached US$18.8 million because of year-over-year revenue declines in plant-based (8.1%) and fruit-based (4.4%) food & beverages business segments. The silver linings are a strong demand for oat-based products and a double-digit sales increase in the fruit snack business.  

Its chief executive officer Joe Ennen said, “While we were certainly not pleased with the quarter, the resiliency of our model to deliver high rates of profitability despite a more challenging environment was a key takeaway from our latest results.”

Ennen added, “Due to frozen fruit customer losses, a slower ramp-up of new business, and current category softness, we are tempering our outlook for 2023.” For fiscal 2023, SunOpta projects revenue between US$880 million and US$900, representing a 4-6% decline.

Nonetheless, Ennen said SunOpta remains committed to its long-term growth algorithm. The company is well positioned for significant growth, particularly in the plant-based segment, which is the future of food.

Unlikely rebound

Major selloffs happen for various reasons, including weak business fundamentals and bad corporate news. SunOpta is a good option for investors seeking pure-play exposure to organic, natural, and non-GMO foods. However, given the unimpressive financials, don’t expect a strong rebound anytime soon.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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