Fool’s “Undervalued 5G stock with 268X growth potential”

What's being pitched as an Agtech "Radar Stock" by the Fool's Next-Gen Supercycle?

By Travis Johnson, Stock Gumshoe, April 15, 2021

OK, so I should warn you up front that this teaser pitch is a little strange. It’s from the Motley Fool, in one of their “Investor Digest” emails that are typically just an excuse to send readers another ad.

And, of course, it’s “top secret” — this is what the email said that several readers forwarded:

“This edition is reserved for Motley Fool members like you who have proven their loyalty and dedication to the principles of Foolish investing, so I’d ask you not to share its contents widely.”

(I guess we’ve got plenty of “rule breakers” here in Gumshoedom, too)

But that’s not the odd part — the oddness is that this pitch is headlined as an “Undervalued 5G stock with 268X growth potential” … but the actual tease is in a totally different business whose actual connection to 5G, if any, is really a stretch. And it kind of makes me think that they left this “5G Stock Poised to Explode in 2021” bit in there from some previous email.

So anyway, it seems this is really an “Agtech” play, not a 5G one… and it’s not technically a recommendation from the Motley Fool service they’re adding, it’s a “radar stock” from their Extreme Opportunity: Next-Gen Supercycle portfolio service ($1,399 for the first year, no refunds)… which I guess basically means that it’s a watchlist idea that they think you should “vet”, not necessarily buy just yet.

But I’m curious, so I dug into the clues. The 268X bit is actually from the ad, not just a vestige of some earlier 5G pitch, this is where they include that info:

“268X(!) potential growth opportunity… This stock is situated in the unique Agtech industry, concentrating in large-scale controlled indoor farms… and while it made $25 million last year, their team predicts a $6.71 billion dollar market, and that’s just based off one of their core targeted opportunities.”

Yes, $25 X 268 is $6.7 billion. We’ll see what that number might mean in a minute.

What other clues do we get about this one? They tell us the size and rough valuation…

“….tiny $1.66 billion market cap… I was surprised to see this company only trading at 4.3x sales”

And drop some more clues about the company’s location:

“Situated in the heart of America, the company is heavily investing millions of dollars into new facilities to meet this demand. This includes 135 acres of indoor farmland that efficiently uses every inch of their properties through their tech-centric process for growing fruits and veggies.”

And apparently the 5G bit was not an editing error, because they throw this in:

“It’s hard for me to overstate how rare it is that you get a stock that’s this small…with the Next-Gen Supercycle team estimating this company be a part of the $17 Trillion 5G growth opportunity…and perfectly positioned to help feed the world….

“And with it comes a demand potential that could make you forget all about Apple tech and instead think about non-GMO apples (and other foods) this company will farm for mankind.”

So… 5G Agritech? Hoodat?

The quick and easy answer, without even pulling the Thinkolator out of the garage, would be AppHarvest (APPH), a controlled environment agriculture company that came public a few months ago through a SPAC merger, and which does indeed have a market cap near $1.6 billion.

But that “4.3X sales” bit is way off, so that slows me down a bit. AppHarvest hadn’t completed their facility or finished a harvest by late in 2020 (they harvested their first tomatoes in January), and didn’t have any revenue… and they’re forecasting just $20-25 million in sales this year (though as they add facilities, growth should be strong — more than doubling every year for a few years, according to their forecasts).

The “$6.71 billion” number does ring a bell for us, however — that’s how AppHarvest assesses the current value of the “fresh leafy greens” market, which has long been the most obvious product for indoor growing… though AppHarvest itself is starting with tomatoes and won’t be getting to greens, they expect, for a year or two.

135 acres? That’s not really a match yet, either, their first facility, in Morehead, KY, (an area that was desperately in need of economic development when I built Habitat for Humanity houses there 25 years ago, and it sounds like it remains so), has a 60-acre growing area (all tomatoes, 720,000 plants, first planting was back in October and the first harvest should be on Kroger shelves now)…

… but wait, there’s hope! It is a match in that they’ve also broken ground on two additional facilities, another 60 acres of growing area in Richmond, Kentucky for more tomatoes and other vine crops… and 15 acres in Berea, KY, for, yes, lettuce and other leafy greens, so that adds up to 135 acres. As of the SPAC deal presentation in December, the expectation was that those would be under construction next year, with another 240 acres in other locations in the initial planning.

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So what on earth are they talking about with that “made $25 million last year” and the “4.3X revenue?” Well, I guess we can stretch a little bit to make that fit — $25 million is the top end of what they say they can make in revenue (not earnings) in 2021, so maybe they’re just a little off on that number, and, like pretty much all SPAC mergers, AppHarvest justifies its valuation by making five-year projections… so th