Mission Produce – An Appealing Investment, What’s The Catch?

“But none of these things move me; nor do I count my life dear to myself, so that I may finish my race with joy, and the ministry which I received from the Lord Jesus, to testify to the gospel of the grace of God.”

Acts 20:24

What is my identify built upon? How does God see me? These are a couple questions that this verse is getting at. Paul was alluding to his trials and tribulations that were a constant result to his message of Jesus Christ. Wherever Paul went, there was either revival or rioting that often-included Paul being beaten or thrown into prison. For Paul, his life circumstances were meaningless aside from his desire to complete his ministry for Jesus Christ.

A recurring theme from the Bible is conviction. But this isn’t a human-based sense of conviction because one is moved to believe by feeling. This is conviction based on undeniable truths which are evident and have stood the test of time of humanity. Can a similar conviction be present for investment decisions? Not likely, but this approach to conviction can be valuable in helping investors become more objective in assessing their investment decisions.

Mission Produce, Inc. (AVO) is a simple business on the surface. However, AVO ‘s focus on avocados generates some important considerations related to volatility of weather and growing seasons, high dependence on Mexico and labor unrest, and other supply and demand constraints impacting volume and pricing and correspondingly, revenue and cash flow margin performance.

AVO is trading near all-time lows, which is appealing. However, investors need to consider the risk-reward equation.

AVO is generating nearly $1.2 billion in avocado sales as the company continues to sustain around 650 million pounds of avocados sold. Recently, AVO has begun to take a similar approach to expanding its blueberry and mango revenues focusing on Latin America opportunities. The upside is based upon AVO’s ability to replicate its success more broadly, but the degree to which this can be accomplished remains to be seen.

The avocado industry is expected to continue to see increased consumption and shifts further to more healthy foods are anticipated. Investors should recognize that AVO has only been a publicly traded company for five years and depending on how successful the company can be, valuation multiples may still need to fall into place. A quick peer group assessment illustrates that AVO at around $10 per share trades at a premium to most when looking at EV/Sales and OCF/Share.

Accumulating today is not an unreasonable proposition, but to buy in simply because the stock price is near a low-point can bear more risk than reward sometimes. Investors should understand that with cash flow margins expected to normalize and inflationary pricing expected to wane, AVO may end up reverting back to higher valuation multiples even at a lower price point. Investors may be best suited exercising some patience for now as AVO continues to work through these variables.