It takes a lot of guts to stand by the besieged cannabis sector. Investors will need a strong measure of pain tolerance to hold onto their OrganiGram (NASDAQ:OGI) stock now. The price decline that started a year and a half ago has been brutal for shareholders.
But let’s not equate Organigram with every other company in the cannabis space. Take a closer look and you just might find reasons to still believe in a share-price recovery.
A Great Quarter for OrganiGram
Past history doesn’t guarantee future results. Still, the data seems to indicate that OrganiGram is on solid footing financially speaking. That’s not something you can say about every company in the cannabis niche.
Looking at the numbers, a compelling argument emerges in favor of OrganiGram. The announced results for the first quarter of fiscal-year 2020 took place a little while ago. Yet, those are the most recent figures, and they’re highly encouraging for OrganiGram stockholders.
In fact, it’s fair to say that the company’s revenues easily outperformed analyst expectations. For the quarter, the consensus estimate was approximately 19.6 million CAD. The actual figure turned out to be 25.2 million CAD.
From one particular perspective, you could call this triple-digit revenue growth. During the previous year’s fiscal first quarter, OrganiGram generated 12.4 million CAD. Therefore, the year-over-year revenue growth comes out to a whopping 103.2%.
Investors should also examine a company’s gross margin. Simply put, this is just a company’s revenue minus the cost of goods sold during that time period. Not enough traders pay attention to this metric, but it’s another bit of information you can add to your research.
In 2019’s first quarter, OrganiGram reported a gross margin loss of 11.1 million CAD, indicating a sizable negative position. A year later, the company’s quarterly gross margin was markedly positive at $million CAD. That’s an astounding turnaround in just the span of a year.
Navigating a Tough Market
Analysts love to remind investors that Cannabis 2.0 (Canada’s rollout of cannabis edibles, beverages, topicals and concentrates) was disappointing. There’s no point in trying to argue against that contention now. The derivatives market might be picking up steam, but OrganiGram’s fiscal health isn’t dependent on that.
Sure, cannabis is facing a tough market at the moment. Nonetheless, OrganiGram has a strong enough revenue stream to ride out the storm. As the company points out in its investor presentation, “2019 net revenue grew over 6 times or 547% from 2018 on the legalization of adult-use recreational cannabis in Canada.” Clearly, OrganiGram has managed to profit even during the most “disappointing” of market conditions.
Indeed, OrganiGram is even pushing ahead with cannabis-derivative products. A company press release revealed some initiatives with great potential:
“Organigram has sent its first shipments of its Edison vape pens … to jurisdictions across Canada … Following a $15 million investment in a high-speed, high-capacity, fully automated production line, the first run of Organigram’s cannabis-infused chocolate offering has also shipped to retailers across Canada.”
With new-product rollouts like these, it’s evident that the company isn’t fazed by analysts’ sour stance on Cannabis 2.0.
The Takeaway on OrganiGram Stock
Revenue growth has been extremely impressive for OrganiGram. You could even call it the great turnaround story in the cannabis space. The sector might be struggling, but OrganiGram stock remains a strong buy.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.