Oatly (OTLY) - the IPO disaster that's quietly turning into a real investment case

Oatly (OTLY) - the IPO disaster that's quietly turning into a real investment case Oatly is the world's largest oat drink company, and most people know it as the poster child for bad IPOs. It listed in 2021 at a $10B valuation and has since fallen more than 96% to a market cap of around $400M. But if you look past the chart, the company has actually been turned around since new CEO Jean-Christophe Flatin took over in 2022. Gross margin has more than tripled, revenue grew almost 20% from FY22 to FY25 despite deliberatively slowing down growth, and adjusted EBITDA turned positive for the first time last year. Q2 FY26 results just came in strong too. Revenue beat estimates and grew 12.7% in constant currency, driven mostly by volume (not price hikes), and management raised full-year revenue guidance from 3-5% to 8-10%. Strategically, Oatly shifted from selling "an alternative to cow's milk" to selling taste and experience. This is targeting Gen Z with margin-accretive flavors like Matcha and Popcorn instead of a sustainability pitch. The rollout pattern (foodservice momentum first, then retail) already worked in Europe and is now being repeated in North America. The brand also travels well internationally and has become something of an industry standard in the barista/coffee shop scene. This reinforces a premium-over-price positioning. FCF is still negative, but it's improving fast from -$475M at the worst point to -$39M in FY25, and management is guiding toward further improvement this year. I don't expect Oatly to reach positive FCF in FY26, but I think FY27 is realistic once the company has scaled up and doesn't need to keep front-loading inventory and brand investments. There are two big catalysts coming up. First, a potential carve-out of the Greater China segment (the only unprofitable region), which could bring in $200M and let Oatly pay down a chunk of its high-interest convertible debt. The strategic review is expected to be completed by the end of this year, so this is a near-term catalyst. Second, new product launches (Matcha, Coconut, Churros, Popcorn flavors) are rolling out in North America in Q3/Q4 after already driving strong growth in Europe. Based on a DCF, I land at a base-case fair value of $24/share, with a bear case of $15 and bull case of $29 - versus a current price of around $12. Weighted average lands at roughly $22, which I'm using as my current fair value. What I find striking is that the company trades at less than 0.5x sales despite being sold in more than 60 countries and selling well. That's a pretty extreme discount for a business with this kind of global footprint, brand equity, as well as improved fundamentals. Main risks: net debt is around $475M, of which $330M are convertibles due 2028 at 9.25% interest, and there's execution risk if the growth playbook loses momentum. That said, the risk looks more manageable than it appears. Proceeds from the China carve-out could cover roughly 1/3 of that debt, and if FCF turns positive, Oatly should also be in a better position to refinance the rest on improved terms. Additionally, the largest shareholder, China Resources Verlinvest, also holds the largest chunk of the convertibles, which lowers the risk of a disorderly default since they have an incentive to find a workable solution. Dilution remains a possibility if fresh capital is needed, but overall I see the risk as lower than the headline debt figures suggest. I rate it a Buy with a $22 price target. Wrote up the full breakdown with the regional data, margin build, and valuation scenarios if anyone wants to dig deeper. Not financial advice, just sharing my own research. Happy to discuss in the comments.