Origin Agritech Limited (SEED) operates agricultural biotechnology and an e-commerce platform in the People's Republic of China. The Beijing-based company recently signed purchase agreements to sell two feedstock companies 50,000 metric tons of its nutritionally enhanced corn. Also, with its partner China Agricultural University, SEED has submitted applications for biosafety certificates for six newly developed gene-edited traits that significantly increase the yield of corn crops.
SEED projects 300% revenue growth to RMB150 million ($23.60 million) and expects to turn a profit in its fiscal year 2022.
However, the stock has declined 17.1% in price over the past month to close yesterday’s trading session at $8.57. In addition, it is currently trading 49.6% below its 52-week high of $16.99, which it hit on April 14, 2021. Moreover, the inflationary pressures on its production costs and supply chain constraints make the company’s near-term prospects look bleak.
Here is what could influence SEED’s performance in the coming months:
Low Profitability
In terms of the trailing-12-month asset turnover ratio, SEED’s 0.25% is 71.1% lower than the 0.86% industry average. Its 27.60% trailing-12-month gross profit margin is 19.1% lower than the 34.13% industry average. Furthermore, the stock’s trailing-12-month ROTC and ROTA are negative compared to the 7.14% and 4.91% respective industry averages.
Stretched Valuation
In terms of trailing-12-month P/S, SEED’s 6.69x is 400.1% higher than the 1.34x industry average Its 8.31x trailing-12-month EV/S is 362.4% higher than the 1.80x industry average.
POWR Ratings Reflect Bleak Prospects
SEED has an overall F rating, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. SEED has an F grade for Quality, which is in sync with its lower-than-industry profitability ratios.
The stock has a D grade for Value, in sync with its higher-than-industry valuation ratios.
SEED is ranked #30 of 31 stocks in the D-rated Agriculture industry. Click here to access SEED’s ratings for Growth, Sentiment, Stability, and Momentum.
Bottom Line
SEED could continue retreating in the near term due to uncooperative weather conditions, high inflation, and supply chain disruptions. Because the stock looks overvalued at the current price level, we think it is best to avoid it now.
How Does Origin Agritech (SEED) Stack Up Against its Peers?
While SEED has an overall POWR Rating of F, one might want to consider investing in the following Agriculture stocks with an A (Strong Buy) or B (Buy) rating: Golden Agri-Resources Ltd (GARPY), Nutrien Ltd. (NTR), and Archer Daniels Midland Co. (ADM).
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SEED shares were trading at $8.49 per share on Tuesday afternoon, down $0.08 (-0.93%). Year-to-date, SEED has gained 18.41%, versus a -6.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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