Hexo Corp. (NYSE:HEXO) grows, produces and distributes medicinal marijuana. The company is based in Canada, and HEXO stock recently made the leap to the NYSE.
Hexo stock has been one of the big names discussed in the marijuana stocks space, but before you decide whether or not to invest, read on.
What HEXO Wants You to Know
A good way to find out about a company is to read its investor presentation. Normally this can be easily found on a company’s investor relations page. The following are some highlights from HEXO’s presentation.
Hexo has three overall strategic priorities. First is operational scalability. This means that management will make sure the internal operations will be able to support the rapid growth that they expect the company to make.
The second priority is product innovation. The company prides itself on being an innovative market leader, and it is committed to stay in this position.
Third is its brand leadership. The company believes its strengths are having an established retail distribution in Canada, its focus on partnerships, its ability to grow at a lower cost than its competitors, and its experienced management.
What You Should Know
Investor presentations can give valuable insights, but you have to be somewhat skeptical. Remember that this is a presentation that management put together for investors. It goes without saying that they are always going to show the company in a good light. Along that line, if a company was increasing profits you can bet that this fact would be on one of the first pages of the presentation. Such is not the case with HEXO.
HEXO is losing a lot of money and it doesn’t appear that this will change anytime soon. In 2017 the annual loss was almost $12.5 million. The $23.5 million loss reported in 2018 was almost twice as much. Analysts predict this years losses will be similar.
HEXO and other marijuana companies will face some challenges over the next few years. This industry is in a consolidation stage and I believe that many of the larger growers will not survive. This is how industries that boom quickly have historically evolved.
Within a few years of cars being invented, there were about 200 companies that made them. Then there were the Big 3. Similar dynamics happened after the birth of the airline industry, the radio industry, and many others.
What’s Next for HEXO Stock?
Like most other marijuana stocks, the price of HEXO stock has trended lower. From July 19 through July 26, it dropped 20%, from $5 to $4.
At that point it became oversold and found support at the $4 level. Since then it has traded in a range between $4 and $4.40 and it isn’t oversold now. If you want to buy this stock this would be a logical place to do so because it has held these levels for two weeks.
Another possible buy strategy would be to wait until it breaks out of the top of the range. The idea behind this is that once it trades above this level, it will be in an uptrend. Buy it on the way up. This may sound counter intuitive because you won’t get the lowest price, but the risk-to-reward ratio could be better.
As of this writing, Mark Putrino did not hold a position in any of the aforementioned securities.