Should Investors Buy HEXO (HEXO) Stock on the Dip or Wait?
HEXO stock has returned 88 percent YTD. Recently, the stock has lost some of its value. Will HEXO stock fall more or go up?
June 4 2021, Published 1:38 p.m. ET
HEXO (HEXO) stock has had a turbulent run in 2021. The stock hit a high of $11.04 amid Reddit mania but the gains soon fizzled. The stock is down 37 percent from its 52-week high, but it's still up 88 percent for the year. What’s HEXO’s stock forecast and will it go up more?
Marijuana stocks, including HEXO, have been on an uptrend amid the talks of federal legalization of marijuana in the U.S. In May, The Marijuana Opportunity Reinvestment and Expungement Act (MORE Act) has been reintroduced in the House. Amazon, an e-commerce giant, has also supported the proposed marijuana legalization in the U.S.
HEXO acquires Redecan
On May 28, HEXO agreed to acquire Redecan for 925 million Canadian dollars, which included 400 million Canadian dollars in cash and 525 million Canadian dollars in shares of HEXO. The business combination is expected to close in the third quarter of 2021. The combined company is expected to be a leading recreational marijuana company in Canada.
Under the terms of the deal, existing Redecan shareholders will own 31 percent of the combined company. The combined entity is expected to have an adult-use marijuana market share of 17 percent compared to Tilray’s 15.5 percent. Tilray became the largest marijuana company in Canada after acquiring Aphria in May.
HEXO’s stock forecast
According to Market Beat, analysts' average target price is $4.18 for HEXO stock, which is 40 percent below its current price. Among the 11 analysts tracking HEXO, three recommend a buy, five recommend a hold, and three recommend a sell. Their highest target price of $10 is 45 percent above the stock's current price, while their lowest target of $0.75 is 89 percent below.
HEXO stock will go up
Redecan is Canada's third-largest marijuana manufacturer. Redecan has the highest customer loyalty for its oils, pre-rolls, and capsules. The company’s revenue increased by 169 percent YoY and its gross margins are over 50 percent. Redecan is also profitable. The combined company is expected to hold a leading position in Canada’s largest markets, including Alberta, British Columbia, Quebec, and Ontario.
The Redecan acquisition comes on the heels of two other significant deals by HEXO this year, including the acquisition of Zenabis Global for 235 million Canadian dollars and 48North Cannabis for 50 million Canadian dollars. These acquisitions should add significant diversification to HEXO’s existing product offerings and overall Canadian market penetration.
Is HEXO stock undervalued?
HEXO trades at an NTM EV-to-sales multiple of 4.8x, which looks attractively priced compared to other fast-growing marijuana companies. Tilray and Canopy Growth are trading at NTM EV-to-sales multiples of 10.9x and 14.4x, respectively.
HEXO stock is a good buy now.
Despite the fact that HEXO stock is up 114 percent over the last year, there's still a lot more possibility for growth. This is mainly because of rising brand popularity, the strength of its business, and upcoming acquisition synergies.
In the second quarter of fiscal 2021 (ended Jan. 31), HEXO’s revenue soared 93 percent YoY to 32.8 million Canadian dollars. The analysts polled by TIKR expect HEXO’s revenues to rise 81 percent and 100 percent, respectively, in fiscal 2021 and 2022.