It’s been a tough week for HEXO, as the stock fell dramatically.
Last week on Thursday, HEXO slashed their fourth-quarter projected revenue numbers to approximately $14.5 million to $16.5 million in the wake of ongoing regulatory uncertainties within the Canadian market and slower than expected store openings across Canada.
This was a shock to investors because HEXO was expected to generate $24.5 million in revenue based on average analyst targets.
HEXO also withdrew their entire 2020 forecast which left investors wondering what the revenue numbers will actually come in at for next year. The average revenue estimate on wall street for revenue in 2020 was just $302 million although RBC Capital markets see “significant risk” for HEXO to hit $250 million.
As a result, the stock now trades below $3, a far cry from it’s 52-week high over $11. HEXO’s stock did finally see a green day on Tuesday, after Aphria posted a second straight profitable quarter, but posted a mere 0.6% gain despite the optimism in the cannabis market.
HEXO seems like a classic case of a company that over-promised and will now underdeliver to its investors… and it couldn’t come at a worse time. The current state of the cannabis market is a very tough environment because investors are growing impatient and want results in the form of revenue.
As expectations come back down to reality, so do share prices, and we can see that for many of the major cannabis companies.
One thing HEXO has going for it is their joint venture with Molson Coors. This allows HEXO to leverage Molson Coors solid and deep-rooted distribution network when they launch cannabis-infused beverages. This could have the potential to generate huge amounts of revenue for the company.
Let’s not forget that just a few months ago Bank of America named HEXO their number one pick within the cannabis sector ahead of Aurora Cannabis and Canopy Growth.
There is no denying that sentiment in the sector has changed over the past few months in the wake of wave after wave of negative news, but as the dust settles, investors will have the opportunity to pick up some of the best companies in the industry at steep discounts compared to what they were trading at not very long ago.
At current levels, HEXO’s stock seems reasonably priced, especially after the dramatic selloff. Therefore, we believe HEXO still remains an important cannabis stock to watch.
(Disclosure: The author owns shares of HEXO)
HEXO shares were trading at $2.70 per share on Thursday morning, up $0.23 (+9.31%). Year-to-date, HEXO has declined -21.28%, versus a 21.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...
