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Pacific Trader: Can this biodegradable plastic maker turn a good idea into a winning investment?

Credit: Good Natured Products Inc.

This Good Natured container is biodegradable, but it doesn’t come cheap

Good Natured Products Increases Revenue and Improves Margins Despite Lower Inventory

The stock: Have you ever looked at all the plastic in your grocery bags and your kitchen and bathroom cabinets and wondered how difficult it can be to make a leak-proof, air-tight and sterile material that won’t will it still come out of the landfill in 500 years? Based in Vancouver Good nature products (TSXV:GDNP) has answered that question with a selection of 400 biodegradable containers, household items, industrial supplies and medical packaging made from plants that look and act like plastic made from petrochemicals. The challenge now is to prove that this good idea can translate into a lucrative opportunity for investors.

The drivers: The company went public seven years ago as Solegear Bioplastic Technologies. This is around the time that the drive to analyze investments based on environmental, social and governance (ESG) criteria started to take off, which Good Natured should score well. So why isn’t the company the darling of all sustainable fund managers? Well, it’s still not breaking even, even though it’s getting close. In the first quarter of 2022, it lost $1.6 million on revenue of $25.9 million. But consider that a year earlier, it posted a bigger net loss, $1.9 million, on sales of just $7.9 million. Margins are therefore moving in the right direction.

The company isn’t immune to the inflationary pressures manufacturers of all kinds face, however, and at around $1 per disposable food container, its products are already several times more expensive than the petroleum-based standard. orders of magnitude. People and companies must be prepared to pay a very substantial premium for the “good nature” of its products, in other words – great demand if the economy goes into a recession.

Good Natured has spent most of its trading history in penny stock territory, briefly peaking at a high of $1.68 in early 2021. It closed Tuesday at 44 cents, giving the company a market cap of just under $100 million (which is less than its projected revenue for 2022).

Speech in the street: Good Natured Products “continues to demonstrate strong results in the face of macroeconomic and inflationary headwinds,” acknowledged Raymond James analyst Steve Hansen, who nonetheless downgraded the stock to “market performance” with a target price of $1 after the first quarter earnings release. Ahmad Chaath from Tag titles seemed more optimistic. “In our view, GDNP shares have never looked more attractive, with a current valuation of just 16.6x enterprise value to sales, compared to an average of 4.3x for peers,” s’ is he excited. Shaath’s target is $2 with “buy” odds.

Go and come : Speaking of ESG, Teak Resources (TSX:TECK.A, TECK.B; NYSE:TECK) launched a commitment to rehabilitate or conserve three hectares for every hectare affected by its mining activities with a donation of land and money to create nature reserves on 14 000 hectares near its operations in British Columbia and Chile. Often referred to as an environmental villain, the company aims to become “nature positive”, she said.