Mission Produce gets about 85% of revenue from avocados, and a price collapse is impacting sales. A supply glut from Mexico, not weak demand, drove the pricing headwinds, but a recovery in prices is now expected. Mission Produce absorbs price shocks better than headlines suggest, with fiscal Q1 gross margin expanding 190 basis points despite a 30% decline in prices.
Seasonality turns in Mission's favor in the second half, with a record Peruvian harvest and management issuing upbeat guidance. Insiders and institutions are buying, including directors, the company's largest shareholder, and elite funds run by billionaires. At 11.9 times forward EV/EBITDA, AVO looks worth about $16.50 a share, roughly 29% above current levels.
Interested in more stocks insiders are piling into before the rest of the market catches on? Check out Insider Monkey's coverage of insider buying and hedge fund positioning. Mission Produce (AVO) sources, grows and distributes avocados across North America, Europe, the UK and Asia.
Avocados account for roughly 85% of revenue, and that is why the company had a tough fiscal first half: sales fell 20% as avocado prices collapsed. The stock is down about 16% from its April highs. Falling avocado prices are hurting Mission Produce, and the problem traces back to Mexico.
The country grew its largest crop in years. Mexico accounts for about 80% of total avocado imports to the US. Avocado exports to the US jumped 35% year over year in the first four months of the year.
The country dominates US avocado supply during the winter and early spring, while the larger California and Peruvian harvests generally do not ramp up until spring. Mission grows its own fruit in Peru and Guatemala, but in Mexico and California it buys from third-party growers, mostly daily at market prices, then packs and delivers it. Mission's high exposure to Mexican supply impacted its results in recent quarters as prices fell.
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