2020 has been a kinder year for many cannabis stocks, rebounding after the struggle of last year. However, HEXO stock remains a notable exception, declining by as much as 15% this year so far and dropping 84% below its 52-week high.
It is perhaps important to figure out why HEXO Corp (TSX:HEXO) (NYSE:HEXO) has declined despite a general rebound in the wider cannabis market.
Analyst downgrades almost always hit a stock hard, and that is what happened with HEXO stock in recent days. The firm MKM Partners downgraded the stock to neutral from buy and also cut the 12-month target price from $5.00 to $1.50.
Kirk Douglas, the analyst at MKM, revealed that the company not only missed expectations in the fourth quarter but also laid-off employees and breached some contracts. The exit of the company’s CFO back in October last year has also been cited as one of the reasons behind the downgrade.
At the time of writing, HEXO stock is up 1.87% at $1.36.
Another downgrade came from Roth Capital, which cut the target price to $1.75 from $2.25. However, Roth continued to hold on to its previous neutral rating.
New Stock Offering
There are other factors to keep in mind, as well. Earlier in January, the company announced that it is going to sell as many as 12 million shares to institutional investors at $1.67 per share. This will raise $20 million for the company. It also issued 6 million shares to warrant holders for $2.45 each.
However, such developments also mean further dilution of shares and so drove the stock lower. These are some of the major factors that drove down the price of HEXO stock over the past few weeks. Investors should watch the developments closely over the coming days and look for signs of improvement in the earnings.
Featured image: Canva