Will Hexo Stock Keep Rising after Its Q3 Earnings?

Hexo (TSE:HEXO) stock has been rising before its third-quarter earnings results. The company will likely report its results for the third quarter of 2020, which ended on April 30,  before the market bell on Thursday. Hexo stock gained over 47% on Monday and closed the trading day at $1.19. At that closing price, the company’s market value was around $460.6 million.

Notably, Hexo stock has lost over 60% of its value in the first five months of the year. Aurora Cannabis (NYSE:ACB), Canopy Growth (TSE:WEED), and Aphria (NYSE:APHA) also fell in the double-digits by around 43%, 11%, and 14%, respectively, during this period. Meanwhile, Hexo stock has started gaining momentum since June. So far, the stock has rebounded almost 88% this month. However, the stock is still more than 25% down since the beginning of the year. Hexo stock is trading around 82.5% below its 52-week high level of $6.8, which it attained on June 11, 2019.

Can Hexo stock continue to rise after its earnings?

I think that the current rally in Hexo stock will be short-lived. The rally has mainly been driven by investors’ optimism due to the economy reopening. Investors should note that Hexo has been struggling with sales and higher losses for quite some time. In the second quarter, the company recorded lower-than-expected revenues of 17.0 million Canadian dollars. The adjusted EBITDA was -10.3 million Canadian dollars in the second quarter.

Temporarily closing stores amid the COVID-19 outbreak also weighed on the company’s sales. Hexo has been dealing with a higher expense burden. The company has laid off many workers in the past. The marijuana company even closed its Niagara facility to reduce its debt load and free its cash.

Restrictions in obtaining Canadian government approval for cannabis derivative products, an oversupplied market, and a rise in black market sales are some of the woes that cannabis players have faced.

Hexo stock might continue to grow with a faster rollout of stores as the economy returns to normal. Some of the lower-priced products, like Original Stash, could drive the company’s sales.

Analysts’ expectations

Analysts expect more than a 53% growth in Hexo’s revenues in the current quarter. Wall Street analysts expect the company to report revenue growth of 58.2% in fiscal 2020 (ending in July). Analysts expect sharp growth in the fiscal 2021 revenues by 85.3% on a YoY basis. However, analysts still expect an EBITDA loss in the quarter and the next two fiscal years.