Like many other companies in the cannabis industry, Hexo (NYSE:HEXO) is facing difficult times. The price of HEXO stock has fallen dramatically. In just four months it has dropped from $8 to $4 a share. Making matters worse, support at the $4 level seems to be breaking.
If you are interested in learning more about Hexo or other companies, a good place to start is by reading investor presentations. These are easily found on a company’s website under the investor or investor relations section. The presentation will include things such as the company’s highlights, strategy and management biographies.
You can learn a lot about a company and its industry by reading the presentation. However, it is important to understand is that these presentations are prepared by the company’s management for investors — so they will always present the company in a good light.
What is also important to understand, and maybe even more important, is that you can also learn a lot if you consider what is not in the presentation.
Hexo’s Investor Presentation
Hexo places a lot of emphasis what the company calls strategically located, large-scale low-cost production facilities. The company believes that the strategic location of these facilities allows it to have competitive electricity and labor costs. The presentation also discusses the company’s established retail distribution network in Canada and how it is positioned to take advantage of the growing global market.
What the investor presentation doesn’t say is important as well. There is no mention of the company’s earnings or profits. That is because there aren’t any. HEXO is losing money. Over the past five years the company has lost about $350 million CAD and most analysts that follow it believe that it will lose money this year as well.
Cannabis stocks saw a tremendous rally last year due to the euphoria and unrealistic expectations that lead up to legalization in Canada. Now investors are realizing that it wasn’t a rally as much as it was a bubble. Investors are starting to come to terms with the fact that many of these companies are losing money.
Despite this, Wall Street remains very bullish on HEXO stock. 14 companies follow it on a research basis. Of these, 10 have “buy” ratings on it, three have it as a “hold,” and one has a “sell” rating on it. The average price target is $10.60, which is almost triple the current price.
What’s Next for Hexo Stock?
HEXO stock just broke support at the $4 level. This level was also support at the end of July. There is a good chance that it now becomes a resistance level. If support breaks and the stock goes lower, the people who bought it are now losing money. They tell themselves that if the stock rallies back up to the level, they will sell it so they can get out at break-even. This abundance of stock for sale at the particular level is what creates resistance.
If Hexo stock continues to trend lower, there may be support around the $3.10 level. This is because it is where the company’s lows were last December.
As of this writing, Mark Putrino did not hold any of the aforementioned securities.