HEXO stock has been gaining in recent weeks, and it is regarded as one of the most promising stocks in the cannabis industry.
HEXO Corp (TSX:HEXO) (NYSE:HEXO) has more than doubled since the beginning of the year but still remains relatively undervalued compared to industry leaders such as Canopy Growth Corp (TSX:WEED) (NYSE:CGC), Aurora Cannabis (TSX:ACB) (NYSE:ACB), and Tilray, Inc. (NASDAQ:TLRY). The only cannabis company with a lower estimated price to sales ratio for 2020 than HEXO Corp is Aphria Inc (TSX:APHA) (NYSE:APHA).
HEXO stock looks promising as the company has projected its price-to-sales ratio in 2020 to be five, which is lower than that of leading industry players. Most cannabis companies have a forward-looking price-to-sales ratio of 16 and based on this ratio, HEXO stock could be a bargain for investors.
The acquisition of Newstrike Brands (TSXV:HIP) has catapulted HEXO into the middle of the pack in regard to production capacity. Before the deal, the company had an annual production capacity of 108,000 kg, and following the acquisition, the production capacity is now projected to be 150,000 kg annually. The joint venture with Molson Coors Brewing (NYSE:TAP), called Truss, for the development of non-alcoholic drinks, will boost the company’s portfolio once Health Canada okays the product categories this year.
Uncertainties of HEXO Stock
Unless the beverages turn out to be a big money maker, then HEXO may have challenges in trying to maintain healthy margins in the future, and its lower tier production capacity may turn out to be its undoing.
The bottom of the chain valuation of HEXO demonstrates market doubts over its competitive position as well as the ability to sustain the demand of the booming market. The Truss joint venture may prove to be a significant driver of value in the next decade.
HEXO stock has gained over 85% so far in 2019 and trading very near to its all-time high.
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