Stock Futures – After its Pullback, Take a Look at ‘Future of Agriculture’ Play AQB Stock
Starting in late 2020, AquaBounty Technologies (NASDAQ:AQB) stock became of interest to many investors. The agricultural technology play had traded wildly in prior years. But, it wasn’t until then that the stock really started to break out.
And, break out it did. Between November 2020 and February 2021, AquaBounty went on a roller coaster ride, from around $4 per share, to $13.32 per share. A major factor in all this was the recent “meme stock” craze. Its meme stock status has also been why shares have seen a dramatic plunge in the past month. Today, AQB stock trades around $6.30 per share.
After the recent pullback, this is shaping up to be an interesting opportunity. Diving into the details, it’s clear there’s substance to go with the hype. The company, which is looking to innovate the world of “aquaculture” (the cultivation of fish like salmon for food), may not be a young start-up.
Yet, now, after many years of minimal revenue, the company may be finally ready to scale up. Admittedly, while this is an exciting opportunity, keep in mind the massive risk here. If things do not pay off, and the hype continues to fade, it’s easy to see shares fall back to prior price levels in the low single-digits.
However, if things do start to pay off, there’s substantial room for gains. A bounce back to prior highs, of course. And possibly, to prices way beyond $13.32 per share.
The Opportunity with AQB Stock
First things first, let’s break down the situation here with AquaBounty Technologies. Like I said above, the company’s focus is on aquaculture. Specifically, land-based aquaculture for the commercial raising of salmon. In other words, the raising of salmon in a controlled environment, instead of catching them in the wild.
There are many pros and cons to farm-raised salmon versus wild-caught salmon. But, via the use of Recirculating Aquaculture Systems (RAS), the company answers many of the concerns some have about this method of salmon cultivation. Namely, RAS prevents disease and contaminants from affecting its salmon. This removes the need for the use of antibiotics and chemicals, resulting in a higher quality product.
But, its method of fish farming (which has been around for several decades) isn’t the only exciting factor here with AquaBounty. The company’s genetically engineered salmon can grow to maturity while using 25% less feed than with typical methods. This not only results in a more efficient operation, but has a positive impact on the environment as well.
In short, AQB stock is a play on new technologies further improving the eons-old business of raising fish for food. Yet, it’s not just the company’s compelling story that makes this an interesting opportunity. Taking a look at the numbers, it’s clear there’s plenty of substance to go with the recent hype behind this stock.
Don’t Let Valuation Scare You Away from AquaBounty
Now that we’ve broken down the story here, how does it parlay into big upside potential for this stock? As we have seen in recent months, hype’s been enough to send certain stocks to the moon. But, once this temporary speculative fever fully cools down, tangible results are going to be what’s needed to move the needle.
Fortunately, that looks to be the case here with AQB stock. Sure, as seen from its financial results over the past few years, this company has been in what you could call its “pre-revenue” stage. Sales have been minimal (around $127,000), but cash burn has been massive ($16.4 million in losses for 2020).
Yet, things are starting to shape up in terms of material revenue. Analyst projections call for $5.5 million in sales this year, and $10 million in sales for 2022. In the early stages of scaling up, the company will continue to operate in the red. But, with $192.3 million raised via two recent equity offerings, it has more than enough in its war chest to keep the lights on, and grow the company to the point of profitability.
Now, valuation may be a concern for some. It’s market capitalization today stands at $444.78 million. At first glance, this looks highly inflated, compared to the aforementioned near-term projections. But, with the salmon industry set to be a $36.2 billion per year business by 2026, and as demand for more environmentally sustainable protein continues to rise, there’s plenty of runway for AquaBounty.
Bottom Line: High Risk, but the Potential Payoff Could be Massive
There’s no denying this is a high-risk stock. Like I said above, if things don’t pan out, shares could continue to fall back to prior price levels. Or, perhaps even lower, given the recent shareholder dilution from the stock offerings.
Yet, if things do pan out, and the company scales into a major salmon producer, AQB stock has massive room for gains. As shares sell-off, now may be time to take a position.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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