It’s probably election related or maybe corporate insiders are nervous about the post-Covid economy as we struggled, for the second week in a row, to find an insider purchase worthy of additional consideration. A ton of habitual buyers, small timers and public offering buys littered the transaction roster. We always overlook those because our experience says they aren’t purchases with a purpose.
This week’s buy is based on the insider’s buying and selling history with his previous company. We are relying on his track record of getting it right last time around as an indication he could be right this time around too.
Michael A. Brown was a Vice President at Calavo Growers, Inc. (CVGW) and was with the avocado distributor from May 2005 until December 2019. (1) He purchased a couple thousand shares of CVGW in March 2017 at $55.50. A year later, he sold Calavo at $92.15. (2) The food company stock rose a touch after he sold but was back in the $60s by the end of 2018. He bought low, sold high and then the stock fell.
Brown must know his avocados (just a little give to the touch for the perfect ripeness) because he joined Mission Produce, Inc. (AVO) in February 2020 as its Chief Operating Officer (COO). Mission is another avocado company. Is it a fruit or veggie? Seed is inside so it must be a fruit.
Mission markets and distributes the Hass avocado brand and recently went public at $12 a share, down from the original expected price-range of $15 to $17. Trading started on October 2, 2020 at $13.64, finishing the day at $12.45. Brown stepped into the open market and bought shares on October 5th and 15th. From experience, it’s not common to see insiders open market buy right after an initial public offering (IPO). More often, they are unloading shares as part of the offering.
According to Statista, Hass avocados dominate the US market, accounting for 96.9% of all sales. (3) The Hass Avocado Board says the US market for the fruit should grow a compound annual growth rate (CAGR) of 5.5% from 2019 to 2023, hitting $8 billion (4) The most recent US sales number we could find were from 2017, $2.3 billion.
Going backwards and using a little creative, financial freedom… we guestimate 2019 sales to be roughly $2.6 billion of which Hass accounted for approximately $2.48 billion. Mission reported revenue of $887.2 million or approximately 35.77% of all Hass revenue sales.
Reportlinker.com believes the US avocado market will hit $3.8 billion in 2020. (5) if that’s correct and AVO owns close to our calculated US Hass market share, then 2020 revenue could be in the ballpark of $1.36 billion. So far, Wall Street hasn’t tossed any projections/forecasts into the public.
Calavo Growers trades at 1.08 times sales. If investors award AVO the same price-to-sales ratio (P/S) and the company does $1.36 billion in 2020 sales, then Mission Produce, Inc. (AVO) would hit $21.17 in the next 12 months or so.
Considering AVO is $13.68 as we type, investors could have nearly 55% upside from Mission Produce’s current price.
Outlook: It’s all guesstimated math on our part, putting together a potential price-target of $21.17 for Mission Produce, Inc. (AVO). In our opinion, the low $20s are not that big of a stretch when the original IPO price range was $15-$17. The unusual, post IPO, insider buy from apparent avocado expert, COO Michael A. Brown, is intriguing when you consider his limited trading history with Calavo Growers, Inc. (CVGW).
Mission Produce, Inc. (AVO) could be appropriate for investors with a taste for above average risk in hopes of above average returns in a steadily growing market.