Attention will shift toward U.K.-based GW Pharmaceuticals (NASDAQ:GWPH) stock as it reports earnings on Tuesday, Aug. 6 after the bell. The cannabis-focused biopharmaceutical firm has escaped the downtrend that hit larger Canadian marijuana companies such as Canopy Growth (NYSE:CGC) and Aurora Cannabis (NYSE:ACB).
Investors will likely watch closely to see if the supply glut and the slow pace of legalization in the U.S. hurt GWPH stock or if profits or drug sales lead to a surge higher.
A Likely Unusual Quarterly Report from GWPH
For the company’s second quarter, Wall Street forecasts earnings of $1.34 per share. This contrasts significantly with the $1.26 loss in the same quarter last year. Analysts also predict revenue of $47.05 million. If this holds, it will mean a 1,261% increase from the same quarter the previous year when GWPH brought in $3.46 million.
Investors should also note that this profitable quarter looks poised to end up as an anomaly. The company reported a loss in the last quarter. Analysts expect losses to resume next quarter and for profits to remain negative until at least 2021.
Consequently, like many marijuana equities, GWPH stock has taken leave of the fundamentals. As of now, it trades at about 76.2 times sales. Still, if the current profit forecast of $6.58 per share for 2021 continues to hold, it will sell at about 24 times 2021 forward earnings.
However, as mentioned before, GWPH stock has avoided price declines that have affected its Canadian counterparts. As of this writing, the GWPH stock price stands at around $157 per share. In early May, the stock spiked to an intraday high of $196 per share before falling back. GWPH has fallen less than 20% from that level.
Popular Drugs Should Propel GWPH Stock
The driving force behind GWPH stock has so far amounted to one cannabis-based treatment — Epidyolex. Epidyolex is a marijuana-based CBD oil treatment for epilepsy. The drug has received FDA approval for treatment of some conditions. Recently, GWPH stock shot higher as officials from the European Medicines Agency (EMA) Committee for Medicinal Products for Human Use gave positive feedback on the drug. This brings Epidyolex closer to full approval by the EMA.
The drug treats seizures associated with Dravet syndrome and Lennox-Gastaut syndrome. That may extend to other types of epilepsy as well. Last May, the company achieved positive Phase 3 results in the U.S. for treatment of Tuberous Sclerosis Complex, a rare form of childhood epilepsy.
Moreover, the company does not depend exclusively on Epidyolex. Sativex is a spray used for the treatment of symptoms of multiple sclerosis. The company markets it outside of the U.S., though the firm is working to obtain FDA approval on that drug.
Should You Buy GWPH Stock Before Earnings?
Admittedly, GWPH stock could go either way before earnings. The sector in general has suffered amid falling prices for dried cannabis. With valuations still elevated, GWPH may need to offer a “perfect” report to keep the stock price from falling.
However, GWPH stock also moved higher following the approval by a committee within the EMA. Also, in Friday trading, Aphria (NYSE:APHA) shot higher by more than 25% after the company reported a profit. As mentioned before, any profits this time will become a one-time event for now. Still, one cannot rule out such a performance for GW Pharmaceuticals given the stock volatility occurring in this industry. The future of GWPH stock as Epidyolex, Sativex, and other drugs should propel revenues and eventually, earnings higher in short order.
Long term, I see GWPH stock as a great buy. Still, for those who do not have the stomach for volatility, I would wait until after the report.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.