Despite the volatility within the cannabis sector in the second half of 2019, Village Farms has maintained a pretty decent trajectory compared to some of its peers. At the start of 2019, the stock saw a tremendous run from just under $4 all the way to highs of over $24. Since then the stock has pulled back substantially seeing recent lows of around $12. The company has managed to buck the trend recently attempting a recovery off if its lows well before other cannabis stocks decided to bounce. We feel that Village Farms could remain a buy for a few reasons despite the massive run that the company recently saw at the start of 2019.
The company has a lot going for it and we can start with its market cap. Even though the company is up over 300% since the start of the year, the market cap still remains under 1 billion dollars, in fact, it currently sits at around 771 million CAD. Compared to its peers who carry massive multi-billion dollar market caps, village farms still seems rather cheap when comparing the companies assets, production capacity and potential growth in the future. In the companies recent quarter they crushed analyst estimates when it came to revenue bringing in $53.5 million compared to analyst expectations of just $41.8 million. They currently have a joint venture with Pure Sunfarms which grew by 125% to bring in $24.2 million USD. The company has been delivering when it comes to the numbers, but what is going to drive the stock moving forward?
In 2017 Village Farms made the shift from growing conventional crops to growing cannabis and they have not looked back ever since, the stock is up substantially in a few short years, and the company should continue to profit from their production capacity that currently sits at around 75,000 kilograms per year. One thing that a company this size has over some of its competitors is the huge footprint when it comes to greenhouses in America. The company currently has 5.7 million square feet of greenhouse space in America that is currently in the process of being converted to grow hemp for CBD extraction.
Hemp has been removed from the list of controlled substances by the passing of the farm bull but in Texas, it is still illegal to buy and sell hemp which puts them in a sticky situation. It is expected that the laws will be changed soon though. Having such a massive footprint allows Village Farms to capitalize on the massive CBD opportunity that lies ahead of us. CBD has the ability to be widely integrated into a broader range of consumer products throughout the world which should dramatically increase revenues, but uncertainty lies within the law. Village farms has proven itself when it comes to growing and selling cannabis, but the future of CBD carries a little more risk. We still like the valuation and growth potential for Village Farms and feel that despite the rally this stock could still be heavily undervalued.
VFF shares were trading at $12.05 per share on Monday morning, up $0.13 (+1.09%). Year-to-date, Village Farms International Inc. (VFF - Get Rating) has gained 271.91%, versus a 20.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investors 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...