Like much of the cannabis sector, HEXO (HEXO) stock has been a slide lately, which has many investors wondering if there is a buying opportunity. HEXO shares were down 15.03% in the past month. Comparatively, the Medical sector was down 3.76% and the S&P 500 lost 3.57%.

With its next earnings release due mid-September, HEXO will be looking flex strength. It’d be wise to take note of Hexo’s current valuation metrics. When compared to its industry’s average Forward P/E of 27.75, Hexo’s valuation is at a premium with its Forward P/E ratio of 152.65.

We can also see that HEXO currently has a PEG ratio of 8.75. This metric is similar to the P/E ratio, but the PEG ratio also takes into account the stock’s expected earnings growth rate. At the same time, the Medical – Products had an average PEG ratio of 2.54 (PEG ratios higher than 1 are typically considered overvalued).

The good news

While projected earnings may be less than favorable at the moment, there are reasons to be optimistic about HEXO stock. For starters, HEXO has about 30% market share of the Quebec cannabis market. Since Hexo has a multi-year supply agreement in place, their share of the Quebec market probably won’t diminish anytime soon.

And as the Canadian recreational market expands and regulations loosen up, Quebec will likely capture approximately 20% of the total Canadian market, giving Hexo a significant runway for growth. Taking those numbers into consideration, it’s conceivable that Hexo stock could eventually represent between 7%-10% of the total Canadian cannabis market.

Earlier this year, HEXO also acquired Newstrike Brands, giving them access to a premium indoor facility which can produce roughly 150,000 kilograms of top-shelf cannabis. The acquisition also increases HEXO’s footprint across Canada.

HEXO also has a lot of potential to expand outside of Canada. The company partnered with Molson Coors Brewing (NYSE:TAP), which could provide a sizable international launch pad for growth as the global cannabis market develops.

Out of 14 analysts covering HEXO stock, 10 recommend buying the stock, three say to hold, and only one recommends selling.

According to Bank of America Merrill Lynch analyst Christopher Cary, even though he thinks the Canadian cannabis market will struggle this year and the next, he still anticipates that HEXO is likely to outperform the market.

Additionally, HEXO seems to be a popular pick among cannabis fund managers, which could further imply that the company is a solid bet. And the stock is currently down 50 percent when compared to its April high.

The bad news

Although HEXO shares are down 50 percent from their April peak, some analysts are concerned that their prices are high when compared to the rest of the market.

According to Charles Schwab, Hexo shares trade at 44 times the company’s sales, considered an enormous multiple when compared to the healthcare sector’s average of 2.21. However, the outsized multiple has a lot to do with the cannabis sector in general, which currently offers as much uncertainty as it does growth potential.

Then there’s the issue of management uncertainty. Back in July, co-founder Adam Miron stepped down from his role as Chief Branding Officer, saying he was ready to move on now that Hexo had become “and established company.”

Although Miron will remain on the company board, shake-ups within the C-suite typically make investors uneasy. Or Miron’s departure could have had something to do with the recent criticism the company received for advertising their products on the social media app SNAP, which many people associate with an underage demographic base.

The social media misstep also could have landed Hexo in Canadian regulatory trouble, but so far nothing has unfolded on that front. And it could be unlikely that anything will, if Hexo followed proper protocol when advertising on the app, as they claim they did.

HEXO shares fell $0.01 (-0.22%) in after-hours trading Thursday. Year-to-date, HEXO has gained 32.94%, versus a 18.58% rise in the benchmark S&P 500 index during the same period.

About the Author: Eric Bowler

Eric is an accomplished journalist providing in-depth insights for more than two decades, with a special focus on the cannabis industry. Learn more about Eric’s background, along with links to his most recent articles. More...

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