After much speculation, Swedish oat drink company, Oatly, is set to launch its IPO this week on the NASDAQ according to papers filed with the SEC. With a potential valuation of around $10 billion, Oatly is poised to push ESG stocks back into the spotlight.

ESG, or Environmental, Social and (Corporate) Governance stocks, are those that commit to not harming the planet or humankind in the making or marketing of their products, and The New York Times just ran a business analysis called "The Big Money Is Going Vegan," that pointed out that with food production a known to be one of the largest industrial contributors to greenhouse gas emissions,"it’s no longer enough for food to taste good and be healthy. More people want to make sure that their ketchup, cookies, or mac and cheese are not helping to melt the polar ice caps."

The popularity of vegan or plant-based stocks such as Oatly is one reason for this oversized IPO price since Oatly is known for its commitment to sustainability and climate-friendly distribution. (Oats are one of the most sustainable products grown, and Oatly has committed to distributing their milk, oat-based icecreams and non-dairy creamers in a fleet of electric-powered trucks which will save 87 percent of carbon emissions of ordinary gas-fueled delivery vehicles.

The plant-based milk company initially filed to begin the IPO process back in January, but the filing with the SEC signifies it has until this week to make its debut on the NASDAQ. Oatly officially filed to go public under the OTLY ticker, and reports are that the listing price will value the company at $10B, which would make it the biggest plant-based company to ever go public.

This sizable offering price would place Oatly as one of the world’s largest plant-based companies, with the valuation of more than 25-times the size that Beyond Meat debuted at, in May 2019. Today, Beyond’s stock hovers around $126 a share, with a total market cap of about $8 billion, making Oatly’s pricing even more aggressive by industry standards.

One reason is that Oatly delivers more than a milk product–it offers a "feel good" green halo, which has attracted celebrity investors like Oprah as well as conventional players like Blackstone, which led a $200 million investment round last year. Other celebrities who have taken a stake in Oatly are Natalie Portman, Jay-Z's Roc Nation, and Howard Schultz, former CEO of Starbucks. Recent years have seen a significant increase in sustainable investing in the US, as consumers started to pay more attention to where their food and beverages come from, and new ETFs launching that offer vegan funds, planet-friendly climate funds, and other vehicles for sustainable investing. Whether or not Oatly can own the plant-based refrigerator shelves alongside popular players like Califia and Blue Diamond's Almond Breeze may be beside the point. It's clear that Oatly’s IPO is being offered at an ideal time for the market.

Measuring Oatly’s Fundamentals

Oatly enjoyed a prosperous 2020, reporting $421.4 million in revenue, representing an increase of 106.5 percent above the company's revenues of $204 million the prior year. This also indicates that the company is accelerating in terms of growth given that its year-over-year growth in 2019 stood at 72.9 percent.

It's especially impressive during a retail period that was heavily disrupted by the pandemic. However, that may have played a role in Oatly’s growth, with consumer attitudes to food sourcing and sustainability coming under the microscope during the height of the crisis.

Despite Oatly’s revenue growth, the company is still yet to become a profitable endeavor, having reported a net loss of $60.4 million in 2020, up from $35.6 million the year prior. Oatly’s gross profit margin hovered at around 30 percent last year, at a total of $129.2 million.

Perhaps most interestingly for prospective investors, is that Oatly’s financial metrics for 2020 are notably similar to that of Beyond Meat, which is about to get more cometition from Impossible Foods, also rumored to be eyeing an IPO in 2021. Over the past year, Beyond reported net revenues of $406.8 million, and a gross profit of $122.3 million.

For reference, when Beyond went public, also on the NASDAQ, the 2018 sales the company released in its IPO prospectus showed net revenues of $88 million and net losses of $30 million.

Oatly’s performance in relation to Beyond may offer investors some early insight into how the company’s IPO will perform when it does bow.

Despite Beyond’s suffering something of a loss of investor appetite through 2021 (the stock is down from an all-time high of 234.90 on July 26, 2019, )as other more tech-based IPOs command the attention of the market, its price today stands at almost five times that of its initial IPO price of $25.

Could Oatly’s Marketing Repel Investors?

Although Oatly’s business model is likely to resonate with investors eager to tap into ESG stocks, the company’s unconventional marketing campaigns may prove problematic among traders who may prefer the tranquility of more traditional approaches to advertising.

Oatly notes that its "provocative and unconventional marketing and advertising campaigns" in the past have contributed to some troubling legal issues. In 2014 the company was subject to a lawsuit from a Swedish dairy lobby where courts ruled that Oatly was ‘disparaging to dairy products.’

The lawsuit ultimately led to a “ban on the further use of a number of expressions marketing our products in Sweden, under the penalty of liquidated damages of 2 million SEK per expression, or $241,000, per violation, the company's prospectus explained.

Oatly remains committed to its unconventional approach to marketing its products and warns that future marketing efforts may subsequently lead to legal action that could undermine the company’s stock performance.

However, Oatly’s approach to marketing may actually prove beneficial to a new wave of retail investors who have turned their hand to stocks during the pandemic.

COVID-19 has enabled millions of individuals to find the time to begin their investment journeys. These same individuals who have been found to crave more sustainable products and brands with more informal relationships with their customers may find themselves more inclined to favour Oatly’s IPO.

According to Maxim Manturov, Head of Investment Research at Freedom Finance Europe, “as per Fidelity report, there were 26M retail accounts in 2020, i.e. up 17% compared to 2019, while the daily trading volume doubled. People in the US traded about 90% more stocks than the week before they received their stimulation funds.”

These new kids on the block were happy to invest hefty sums of money into their chosen stocks, too: “a survey by Deutsche Bank, which included 430 retail investors, showed that the respondents were going to invest, on average, 37% of all their stimulation money into stocks. Goldman Sachs recently raised its expectations for stock demand by retail investors in 2021, from $100B to $350B,” Manturov explained.

Oatly’s debut in the coming days will represent one of 2021’s most significant ESG listings, and while the company’s approach to marketing and apathy towards legal challenges may have been a red flag in traditional investing, the post-COVID-19 climate of sustainability-conscious investors may well play into Oatly’s hands.