Oatly Price prediction as HSBC calls on ‘frothy’ valuation

On Tuesday, Oatly Group AB (NASDAQ:OTLY) shares fell by nearly 4% after HSBC Holdings Plc (LON:HSBA) analysts issued a valuation warning on the company’s Oat Milk category. The firm said management has fundamentally overestimated the size of its Oat Milk segment. In addition, analyst Jeremy Fialko thinks the company may be overinvesting, which could potentially lead to lower margins.

The analyst thinks OTLY’s valuation is frothier than a Barista blend.

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The company’s fiscal this-quarter revenue increased by more than 49% as reported earlier this month but still fell short of analyst expectations. Its slight earnings beat was ignored by investors.

The downward pressure was compounded by a full-year 2021 revenue guidance that fell well below the consensus Street forecast.

Should you bet on Oatly’s growth prospects?

From an investment perspective, Oatly shares trade at a reasonable price-sales ratio of 9.26, making it an interesting option for value investors.

On the other hand, analysts expect its bottom line to improve by 34.30% next year, whilst growing at an average annual rate of about 14.90% for the next five years. 

Therefore, although its EPS is forecasted to decline further by 69.40% this year, the long-term future looks exciting.

Technically, Oatly shares seem to be trading within a descending channel formation in the intraday chart. As a result, the stock has fallen closer to oversold conditions, opening an opportunity for a rebound.

Therefore, investors could target technical rebound profits at about $10.45, or higher at $13.42, while $6.85 is a crucial support level.

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