After I wrote bullish, “hang in there” columns on marijuana stocks since the dog days of summer, my readers will probably hunt me down for saying this. But I’m here to save you money and heartache, not win a popularity contest. And I just can’t bring myself to be bullish on Hexo (NYSE:HEXO) stock today.
It’s perfectly OK to hold onto Hexo stock if you have a small position and a very long time horizon. But I certainly wouldn’t blame investors for selling some or all of their Hexo stock and finding something with more promise – and with better numbers to back it up.
“Good News” for Hexo Stock or Just Spin?
Based on the statements of HEXO CEO and co-founder Sebastien St-Louis, it sounds like the company is on the cusp of its best year ever. His speech during the company’s fourth-quarter earnings conference call was rife with pomp and circumstance, starting with “We are at the end of the first year of adult use legalization in Canada, which was an incredible year full of successes and challenges across the industry.”
With this very first proclamation, I already saw the needle move on the “spin” meter. Check the Hexo stock price – or the chart of any Canadian weed stock, for that matter – over the past year, and I don’t think you’ll get the impression that investors are so inspired by “Cannabis 2.0,” the legalization of marijuana food and beverages, which is taking effect this month.
But I’ll let the guy say his piece. Next up is “We’ve gone from CAD 4.9 million to CAD 59.3 million in gross revenue in just one year.” Then the CEO added, “This type of revenue growth is a testament to the company’s resilience and capacity to pivot in the face of uncertainty.”
Sorry, but no, it isn’t. I won’t dispute the numbers, but bear in mind that gross revenues don’t mean much if the bottom line is weak. And weak it is; during Q4, HEXO suffered a net loss of CAD 56.7 million. This makes the company’s $10.5 million loss from the fourth fiscal quarter of 2018 seem like chump change.
Hexo Gets Wrecked-o
I usually like to be a champion of the underdog, but the events of 2019 have soured my enthusiasm for Hexo stock. Let’s not forget,, as an example, that Hexo withdrew its fiscal 2020 outlook on Oct. 10. That struck investors as unprofessional and Hexo stock price subsequently took a hit; the following earnings report just made things worse for the company and its hapless shareholders.
Analysts’ average estimate for HEXO’s Q4 sales was CAD 16.04 million, which I felt set the bar rather low. Alas, it wasn’t quite low enough: HEXO’s sales came in at $15.4 million.
Perhaps worst of all for the owners of Hexo stock was the revelation that HEXO is facing an imminent cash crisis, as the company only has CAD 139.51 million. If, as I mentioned, Hexo had a net loss of CAD 56.7 million in a mere three months, how much longer will it be before the cash well runs dry and the company is operating entirely under water?
What’s Next for Hexo Stock?
With Hexo stock price at $2.225, the shares might seem like a steal. but I don’t want the market to steal investors’ hard-earned capital. I’m not long Hexo stock because if I’m right, the CEO’s spin won’t translate to a win for the owners of Hexo stock.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.