HEXO stock is on the rise today, up 2.39% at the time of writing; shares are selling for $6.43 USD on the NYSE American. Gains are always welcomed in the cannabis industry, but analysts are still calling shares of HEXO Corp (TSX:HEXO) (NYSE:HEXO) undervalued. Let's look at the potentials in the company.
HEXO Stock Increase But Still Undervalued?
HEXO shares hit a high of $8.28 in April and have since declined to current prices with several dips and gains along the way. This decline represents a 22% drop; however, year-to-date, shares have packed on 67%—significantly more eye-catching for investors.
According to the NYSENewsroom, the markets are still undervaluing HEXO stock. There are several reasons why this is a possibility.
HEXO Stock Reasons to Play
The company has several distinguishable features. One of our favorites is its exclusive distribution and supply agreements with the province of Quebec. It is the largest agreement of its kind in the industry.
Along with Quebec, HEXO Corp currently serves three other provinces. All in all, it reaches 87% of the Canadian population. This reach means the company's pure cannabis products are already growing revenue at a nice pace.
But in addition, it has several significant partnerships with larger companies to develop cannabis-infused beverages, foods, and cosmetics. Its most important one is the collaboration with Molson Coors Canada (NYSE:TAP). Named Truss Beverages, the pair are developing a line of cannabis-infused beverages for phase II legalization expected across Canada in October this year.
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Further, HEXO Corp's recent acquisition of Newstrike Brands will soon expose it to four new provinces as well as double its production capacity by 50%. This merger cements HEXO as an industry leader and has added significant gains to HEXO stock already.
With all these considerations, the company now has an "enterprise value of $2.43 billion and 12-month-forward revenues in excess of $200 million." Simply put, according to analysts at SeekingAlpha, "HEXO is a bit undervalued."
Conclusion: HEXO Stock is Undervalued
HEXO Corp is currently ticking a lot of boxes that investors should look for in this industry: it has market-leading production capacity of 150,000 kg; a lucrative and steady supply agreement with Quebec (this secures it hundreds of millions in revenue in the years to come); and it is venturing into the lucrative area of cannabis-infused beverages and foods.
Now, management is calling for revenue to reach $400 million and above by 2020. Whether that will happen remains to be seen. But SeekingAlpha says further:
"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, [HEXO stock] seems quite undervalued."
Analysts have been calling HEXO stock undervalued for some time now. So investors should also question if the stock has peaked around the $6–8 mark for this year anyway. If you are expecting HEXO to shoot into the double-digit regions—well, it very well might, but when it will do so is the real question.
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