The best vertical farming stocks today could be at the center of global food production in the future.
The global vertical farming market was valued at $4.34 billion in 2021. The market is expected to grow at a CAGR of 25.5% through 2030. This growth outlook seems realistic and possibly conservative.
With global food and water scarcity, vertical farming might be at an inflection point because it uses significantly less water to get yields several times higher as compared to conventional farming.
Of course, the story is gloomy for vertical farming stocks. Some of the best vertical farming stocks have plunged in the last 12 months. The reason is uncertainty related to the scaling-up of operations and cash burn.
Amidst these challenges and uncertainties, vertical farming stocks trade at seriously undervalued levels. I would remain cautious and consider some exposure to the best vertical farming stocks. If the industry can navigate the headwinds, these stocks can deliver manifold returns.
Let’s, therefore, talk about four of the best vertical farming stocks to buy.
| APPH | AppHarvest | $0.87 |
| VFF | Village Farms | $2.14 |
| HYFM | Hydrofarm Holdings | $3.04 |
| AGFY | Agrify | $1.03 |
AppHarvest (APPH)
AppHarvest (NASDAQ:APPH) stock does not look great on the charts with a sustained decline. It’s however a risk worth taking as APPH stock trades below 90 cents. The downside seems capped from current levels and there are positive business developments.
Last month, AppHarvest reported Q3 results, and I believe that farm-network expansion is the key highlight. In October, the company commenced commercial shipments from a 15-acre farm. Additionally, another 30 acres were operational at the beginning of November.
By the end of 2022, AppHarvest has guided for 165 acres under operation. This is significant from the perspective of revenue growth in 2023 and 2024.
While cash burn is likely to sustain, I don’t see financing growth as a big headwind. As of Q3 2022, AppHarvest reported $36.2 million in cash and equivalents. Additionally, the company had $98.6 million available under the at-the-market offering facility.
Village Farms International (VFF)
As a manufacturer and distributor of controlled environment agriculture equipment, Hydrofarm Holdings (NASDAQ:HYFM) look attractive. The stock has plunged by 90% for year-to-date 2022 and it seems that the worst of the correction is over.
For Q3 2022, Hydrofarm reported sales of $74.2 million. On a year-on-year basis, sales have declined sharply due to challenging industry conditions. However, the long-term outlook remains positive considering the outlook for vertical farming.
The good news is that Hydrofarm has reaffirmed its full-year sales guidance of $330 to $347 million. The current valuation is therefore 0.3 times sales. Clearly, HYFM stock is undervalued even after discounting the growth deceleration.
Coming back to financials, Hydrofarm reported operating and free cash flow of $8.2 million and $5.6 million respectively. Once growth gains traction, the business has the potential to deliver robust free cash flows.
Agrify (AGFY)
Agrify (NASDAQ:AGFY) stock has also remained weak through year-to-date 2022. The provider of innovative cultivation and extraction solutions for the cannabis industry however looks interesting.
For the first nine months of 2022, the company reported revenue of $52.4 million. On a year-on-year basis, revenue increased by 51.4%. While revenue growth has been healthy, AGFY stock has plunged on a significant increase in operating losses. For the full year, the company has guided for revenue of $65 to $70 million.
I however remain positive on the long-term outlook for the following reason – Agrify is a producer of proprietary micro-environment-controlled vertical farming units. These units enable companies to produce at high quality and deliver a robust yield. If the global market for vertical farming gains traction, the company will benefit.
Another point to note is that there is a case for the legalization of cannabis in the U.S. and Europe in the coming years.
Agrify is also catering the customers in the cannabis business. The company is positioned to benefit from demand for fresh produce farming as well as controlled environment cannabis cultivation.
On the date of publication, Faisal Humayun did not hold (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.