Vertical farming may answer the question of how to feed a growing population amid increasingly unpredictable weather conditions due to climate change. The novel approach seeks to provide long-term, sustainable solutions and has drawn investor interest in vertical farming stocks.
The vertical farming market is expected to grow at a compound annual rate of more than 25% through 2030, making it a $31.6 billion industry. This kind of growth will no doubt be enticing to investors, although they may not know where to get started with vertical farming stocks.
To that end, below you will find three vertical farming stocks that provide outsized potential, albeit with a fair helping of risk.
|Village Farms International
Hydrofarm Holdings (HYFM)
Hydrofarm Holdings (NASDAQ:HYFM) is a leading producer of equipment and related chemicals for use in the controlled environment agriculture market, which includes indoor agriculture and vertical farming. It sells various nutrients and high-intensity grow lights to create indoor growing facilities.
The controlled environment agriculture industry could roughly double in size to hit a market value of $100 billion by 2030, according to Lux Research. That spells big opportunity for Hydrofarm, which has been acquiring companies in the space recently.
Revenue has grown steadily for the past few years, although it is expected to decline in 2022 amid what CEO Bill Toler called a “hydroponics industry recession.” Management recently reduced its outlook for the year, saying it is focused on lowering its cost structure and maintaining liquidity.
This could spell more short-term pain for HYFM stock, which is down 89% year to date, and other vertical farming stocks. However, for investors with a long time horizon, this may represent an excellent chance to buy shares on the cheap to benefit from the long-term trends in the industry.
AppHarvest (NASDAQ:APPH) develops and operates indoor farms in the Appalachian region of the United States. It is an early-stage growth firm with a long-term plan to leverage artificial intelligence and robotics to enhance farming yields.
The company is focused on expansion with plans to have 12 farming facilities operational by 2025, three of which are expected to be up and running by the end of this year. It also acquired Root AI, which is developing a harvesting robot for indoor farming, last year for $60 million.
The company reported a slightly smaller-than-expected second-quarter loss of 28 cents per share. Its net loss of $28.7 million represented a $3.3 million improvement from the year-ago quarter. Revenue missed estimates, but sales were up 39% year over year to $4.36 million. While growth has slowed, it is encouraging to see the company is burning less cash — $10.1 million in the latest quarter compared with $27.3 million a year ago.
Like most growth stocks, APPH has not found favor with investors over the past year, with shares down 66%. But the world will need companies like AppHarvest that combine farming with cutting-edge technology. And this could mean big gains for those who buy shares of this and other vertical farming stocks at a discount.
Village Farms International (VFF)
Village Farms International (NASDAQ:VFF) is a Canadian hydroponics specialist that has amassed an impressive portfolio of assets. This includes the recent addition of low-cost cannabis producers to diversify operations.
The company has a long history of modern greenhouse operations and expanding features to improve its overall business. The firm has fostered retail partnerships, collected historical weather data and added small companies involved in power production. Its Canadian cannabis business has proven remarkably profitable with 15 straight quarters of positive adjusted EBITDA.
Shares are down 60% year to date. To my mind, the current valuation of just $228.5 million is a steal. The stock is poised for strong gains based on its attractive growth catalysts.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.