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HEXO Has Been a Star Cannabis Stock, but What Does Valuation Say?

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May. 22 2019, Published 8:03 a.m. ET

HEXO

HEXO (HEXO) has been a star stock within the cannabis sector with returns of almost 96% YTD as of the date of this writing. In comparison, the Horizons Marijuana Life Sciences ETF (HMMJ) returned just about 40% over the same period. Let’s look at what the company’s valuation says when compared with its peers.

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Valuation multiples

As of May 22, HEXO’s (HEXO) forward EV-to-sales multiple stood at 5.4x, which was still trading at a discount to the peer median of 6.9x despite gaining momentum in recent days. The stock was also trading at a discount to its historical average of 5.8x. The overall market has experienced weakness, which is also visible in the median multiple, which was trading at a discount to its historical average of 7.8x.

CannTrust (CTST), for example, was trading at a forward multiple of 4.2x compared to its historical average of 6.0x, while Green Thumb Industries (GTBIF) and KushCo Holdings (KSHB) were also trading at a discount to the median and at their historical average of 1.5x and 1.8x, respectively.

Much of the change in the forward multiples has been driven by declining stock prices for these companies. However, in contrast to the above stocks, cannabis REIT stock Innovative Industrial Properties (IIPR) has increased compared to its average. The stock was trading at a forward multiple of 20.9x as of May 22.

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