Potential Revenues Make It A Buy Opportunity
HEXO Corp. is a cannabis company with a very interesting exclusive agreement with the SQDC.
HEXO has a strategy that includes a wide range of cannabis-related products.
The merger with Newstrike Brands positions HEXO as an industry leader.
It is quite undervalued based on the fact that its revenues could reach more than $200 million in the next twelve months.
HEXO Corp. (TSE: HEXO, NYSE: HEXO) is a cannabis company that is growing revenues at a nice clip. The most distinguishable feature of this company is the exclusive distribution and supply agreements it has with Quebec, the largest agreement of the industry. Although HEXO currently serves only four provinces (pre-merger), it reaches 87 percent of the Canadian people.
Besides pure cannabis products, the company expects to develop cannabis-infused beverages, foods, and cosmetics in collaboration with larger companies, such as the partnership with Molson Coors Canada, named Truss Beverages. The Newstrike Brands’ merger will expose HEXO to four new provinces and expand production by 50%. With an enterprise value of $2.43 billion and 12-month-forward revenues in excess of $200 million, HEXO is a bit undervalued.
With a production capacity of 150,000 kg and facilities with more than 3 million sf, HEXO seems poised to generate significant revenues and grab a relevant market share in Canada and Europe. It is the preferred supplier and distributor in Quebec, which will secure it hundreds of millions in revenues in the years to come. It is also venturing in new areas like cannabis-infused beverages and foods. The company has closed a merger with Newstrike Brands that is accretive in many ways and seems approved by the market.
The management expects revenues to be more than $400 million in the fiscal years ending July 31, 2020, and according to my estimations, it could reach $200-$244 million in the 12 months from February 1, 2019 to January 31, 2020. With a forward EV/Revenues in the 10x-12x range, the stock seems quite undervalued. Remember it has been valued this way for a while although it has increased a bit and could not expand in valuation as you could expect.