High inflation is increasing the cost of inputs like seeds, fertilizers, and machinery, making it more expensive for farmers to produce their crops. Moreover, labor scarcity is becoming a growing concern in the agriculture industry, with many farmers struggling to find enough workers to meet the demands. As a result, the U.S. agriculture sector might remain under pressure.
So, I think its best to avoid agricultural stocks Local Bounti Corporation (LOCL), Evogene Ltd. (EVGN), and Edible Garden AG Incorporated (EDBL).
The U.S. Department of Agriculture has reported that farm incomes in the U.S. are expected to decrease this year. This is the first time since 2019 that farm incomes are expected to fall.
Additionally, global agricultural GDP is projected to fall by nearly 30% over the next five years, from $255 billion in 2021 to $36.50 billion in 2026. Global agricultural production is expected to drop by 1.5% year-on-year on average between 2021 and 2026, from $2.7 trillion to $2.5 trillion. Since 1996, the global supply has been declining at an average rate of 6.5% year-on-year.
Furthermore, while the US agriculture industry is highly dependent on favorable weather conditions for crop production, it has recently faced numerous challenges due to natural disasters such as droughts, active wildfires, and hurricane seasons.
Take a look at the stocks mentioned above:
Local Bounti Corporation (LOCL)
LOCL grows fresh greens and herbs in the United States. It produces lettuce, herbs, and loose-leaf lettuce. The company sells its products to food retailers and food service distributors.
LOCL’s forward EV/Sales of 8.38x is 410.6% higher than the industry average of 1.64x. Its forward Price/Sales multiple of 2.29 is 105.4% higher than the industry average of 1.12.
Its trailing-12-month asset turnover ratio of 0.09x is 89.9% lower than the 0.85x industry average. Its trailing-12-month gross profit margin of 19.06% is 39.4% lower than the 31.46% industry average.
LOCL’s adjusted selling, general and administrative expenses increased 59.6% year-over-year to $7.36 million during the fourth quarter that ended December 31, 2022. The company’s adjusted EBITDA decreased 37.5% year-over-year to negative $6.97 million, and the net loss applicable to common stockholders per common share came in at $0.30.
Analysts expect LOCL’s EPS to be negative $0.26 for the current fiscal quarter ending March 2023. Its revenue is expected to be $7.55 million for the same quarter. Also, the stock failed to surpass the EPS and revenue estimates in three of the trailing four quarters, which is disappointing.
The stock has declined 91% over the past year to close its last trading session at $0.66. Also, the stock fell 52.5% year-to-date.
LOCL’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
LOCL is also graded an F in Quality and a D in Value, Stability, Sentiment, and Momentum.
It is ranked #26 among 33 stocks in the D-rated Agriculture industry.
In addition to the POWR Ratings stated above, LOCL’s rating for Growth can be seen here.
Evogene Ltd. (EVGN)
Headquartered in Rehovot, Israel, EVGN operates as a computational biology company. It focuses on product discovery and development in multiple life-science-based industries, including human health and agriculture, through the use of its Computational Predictive Biology platform.
EVGN’s forward Price/Sales multiple of 5.46 is 34.1% higher than the industry average of 4.07.
Its trailing-12-month asset turnover ratio of 0.03x is 92.7% lower than the 0.34x industry average. Its trailing-12-month gross profit margin of 45.73% is 18.1% lower than the 55.85% industry average.
During the fiscal fourth quarter that ended December 31, 2022, EVGN’s revenue came in at $660 thousand. Its loss came in at $3.82 million, whereas the loss per share attributable to equity holders of the company came in at $0.07.
EVGN’s EPS is expected to be negative $0.18 for the current fiscal quarter ending March 2023. Its revenue is expected to be $870 thousand for the same quarter.
The stock has plunged 56.9% over the past year to close the last trading session at $0.59.
It’s no surprise that EVGN has an overall rating of F, which translates to a Strong Sell in our POWR Ratings system.
EVGN also has a D grade for Quality, Stability, Growth, and Value. It is ranked #29 in the same industry.
Click here to see the POWR Ratings of EVGN (Sentiment and Momentum).
Edible Garden AG Incorporated (EDBL)
EDBL operates as a controlled environment agriculture farming company. It offers various packaged products, like crisp ranch, Caesar salad kits, etc.
Its trailing-12-month gross profit margin of 3.15% is 90% lower than the 31.46% industry average.
During the fiscal year that ended December 31, 2022, EDBL’s gross profit decreased 43.8% year-over-year to $364 thousand. The company’s net loss increased 124.9% year-over-year to $12.45 million, whereas its net loss per common share increased 23.9% year-over-year to $48.68.
Street expects EDBL’s EPS to come in at negative $1.22 for the current fiscal quarter ending March 2023. Its revenue is expected to be $2.16 million for the same quarter.
The stock has lost 65.1% year-to-date to close the last trading session at $2.20.
EDBL’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system.
It also has a D grade for Quality, Stability, Sentiment, Momentum, and Value. EDBL is ranked #24 in the same industry.
To access the additional ratings for EDBL for Growth, click here.
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LOCL shares were trading at $0.64 per share on Thursday afternoon, down $0.02 (-2.73%). Year-to-date, LOCL has declined -53.96%, versus a 5.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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