Mission Produce trades at $12.21 and has moved in lockstep with the market. Its shares have returned 7.2% over the last six months while the S&P 500 has gained 5.3%.

Is there a buying opportunity in Mission Produce, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think Mission Produce Will Underperform?

We don't have much confidence in Mission Produce. Here are three reasons why we avoid AVO and a stock we'd rather own.

1. Fewer Distribution Channels Limit its Ceiling

With $1.39 billion in revenue over the past 12 months, Mission Produce is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers. On the bright side, it can grow faster because it has a longer list of untapped store chains to sell into.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Mission Produce’s revenue to drop by 15%, a decrease from This projection is underwhelming and implies its products will see some demand headwinds.

3. Low Gross Margin Reveals Weak Structural Profitability

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

Mission Produce has bad unit economics for a consumer staples company, signaling it operates in a competitive market and lacks pricing power because its products can be substituted. As you can see below, it averaged a 10.9% gross margin over the last two years. Said differently, for every $100 in revenue, a chunky $89.09 went towards paying for raw materials, production of goods, transportation, and distribution.

Final Judgment

Mission Produce falls short of our quality standards. That said, the stock currently trades at 15.8× forward EV-to-EBITDA (or $12.21 per share). This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at one of our all-time favorite software stocks.

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