Shares of alternative-milk company Oatly Group (NASDAQ: OTLY) soared on Tuesday after the company reported financial results for the first quarter of 2024. It’s only a mild reprieve for a stock that’s still 96% below its all-time high, but it was a welcome reprieve for shareholders, nonetheless, with Oatly stock up 15% as of 1:15 p.m. ET.
A huge step forward with gross profits
When it comes to the top line, Oatly didn’t turn any heads in Q1. The company’s Q1 revenue of $199 million was up less than 2% year over year. However, management is shooting for profitable operations, and the company took a humongous step forward.
In Q1, Oatly had a gross margin of 27%. For perspective, its gross margin was only 17% in the prior-year period and 11% in 2022. Management credited improvements to its supply chain operations for the big jump. By contrast, its prices increased less than 2%.
With its gross-margin improvement, Oatly is quickly bouncing back to the margin profile it had when it went public, as the chart below shows. (Keep in mind that the chart isn’t up to date with Q1 results.)
Is the progress enough?
Oatly only expects 5% to 10% full-year revenue growth in 2024. Its gross-margin improvements are impressive. However, the company is still burning significant cash for its size, with negative free cash flow of $45 million in Q1 alone.
Oatly has cash and equivalents of just over $200 million as of the end of Q1, which will easily get it through the rest of the year at this pace. But its growth is moderating, and it’s unclear how much more operating leverage it can find to improve its bottom line.
This means that Oatly stock is still risky today, so investors need to know their risk tolerance. But Oatly stock could keep soaring if management can find ways to keep cleaning up the company’s financials.
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Jon Quast 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.
Why Oatly Group Stock Soared Today was originally published by The Motley Fool