If you’ve never heard of Pyxus International (NYSE:PYX), you are not alone. Previously known as Alliance One International, the $380 million company only recently moved onto Wall Street’s radar when it expanded outside of its central tobacco business and made a move into legal cannabis. This has placed Pyxus stock firmly into the spotlight for many investors.
Pyxus calls this new business unit its “global specialty products,” and already the outlook is impressive. In fiscal 2018, the company predicts total EBITDA (earnings before interest, taxes, depreciation and amortization) of $170 million, with 97% of that generated from tobacco. But by fiscal 2023, global specialty products should account for about two-thirds of total EBITDA.
The company’s traditional tobacco business, which still goes by the name Alliance One, works with more than 300,000 farmers in 35 countries on five continents and its shipments go to more than 90 countries. Pyxus is big in the tobacco market, with nearly 50% of U.S. market share. But because this industry is declining globally, management made the smart decision to pivot into the emerging cannabis and hemp business.
Not only are these industries two of my favorites right now, they also happen to be some of the fastest-growing investments themes around the world.
Pyxus Stock: Jumping Into Cannabis
Pyxus owns 80% of Goldleaf Pharm, a company that produces and sells medical cannabis in Canada. It was granted a cultivation license from Health Canada in late September and was also recently approved to sell medical cannabis oil. Once cannabis is fully legalized in that country on Oct. 17, both licenses will apply to recreational sales as well.
Pyxus’ 145-year history of working with farmers is also beneficial when it comes to the move into industrial hemp and cannabidiol (CBD) oil, an area within marijuana that is often overlooked by investors. Thanks to regulatory changes, hemp and CBD are poised to grow 40-fold in the next five years.
Then there are the fundamentals. Pyxus stock currently trades with a price-to-sales ratio of 0.2 based on the trailing 12 months of revenue. Combine that with a forward price-to-earnings ratio of 4.1 and it’s clear that the downside is limited at current prices.
The one thing worth keeping in mind is that Pyxus stock has recently become a favorite of traders, and as a result it has more than doubled in the last month. Therefore, I recommend PYX only for those willing to stomach the daily volatility.
If that’s you, then here’s the bottom line: PYX is a company with a long history, and its pivot to a high-growth sector like marijuana puts it in position to keep booming. The future of PYX stock looks very promising, and I see much higher share prices in the next three to five years.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.