The first six months of 2020 were particularly challenging for cannabis market investors. Hexo’s (NYSE:HEXO) stakeholders suffered staggering losses during this time period, and I even recall hearing chatter that HEXO stock might go to zero.
Even during the cannabis industry’s darkest hour, when the novel coronavirus was wreaking havoc on the global economy, there was no reason for HEXO stock to go to zero.
Still, it must be admitted that the bears and short sellers were fully in control of the price action for a while.
On the other hand, for HEXO stock holders, the second half of 2020 hasn’t been as bad as the first half. There haven’t been any massive share-price crashes. Plus, in November there were signs that the bulls might be ready to assert themselves.
I don’t want to paint an overly optimistic picture here. Lately, there’s been both good news and bad news for HEXO stock holders. Nonetheless, any adherent of the “buy low, sell high” philosophy might want to consider putting HEXO on his or her watch list now.
A Closer Look at HEXO Stock
Sometimes, sideways price action can be a good thing. That’s especially true after a stock price has crashed.
At one point in January, HEXO stock stood tall (relatively speaking) at $1.85. Unfortunately, the onset of Covid-19 caused the share price to plummet. The lowest point occurred in March, when HEXO fell to around 35 cents.
After that, the HEXO share price wobbled around wildly for a couple of months. Nimble short-term traders might have capitalized on the brief price spikes. Long-term investors didn’t have much cause for celebration, however.
Thankfully, a sideways period followed as HEXO moved sideways from July to November. This was a surely welcome change for investors seeking stability.
Plus, there were a couple of times in November when the bulls briefly pumped the HEXO stock price up. Perhaps this is a sign that a real, sustained breakout is imminent.
A Fairly Decent Quarter
With the HEXO share price moving sideways for multiple months, Hexo’s fourth-quarter fiscal data release had the potential to induce a breakout or a breakdown.
As it turned out, the results were fairly decent overall and some of the numbers were actually quite encouraging. Here’s a rundown of the fourth-quarter highlights:
- Net revenues of CAD27.1 million, representing a 23% improvement over the previous quarter and a 76% increase over the comparable prior-year quarter
- Gross revenues of CAD36.1 million, which is the highest quarterly gross revenues in Hexo’s history. It’s also 17% more than the gross revenues of the previous quarter as well as a 76% year-over-year improvement.
- Cash and cash equivalents increased by 95% over the previous quarter
- Ended the quarter with CAD223 million of working capital, which included 184 million CAD of cash
It’s fair to say, then, that Hexo managed to end the quarter with a reasonably solid, if not spectacular, capital position. Shareholders should watch the company closely to see how Hexo uses these funds.
During these challenging times, the shareholders should hope that Hexo will exercise fiscal discipline. The world is still dealing with a second and/or third wave of Covid-19 infections, so this is probably a good time for cannabis companies to hold cash in case they need it as there might be hard times ahead.
A Split Decision
I wish that I could only report the good news, that wouldn’t be balanced reporting. Thus, I must share the worrisome development brought to us by InvestorPlace contributor William White.
As you might be aware, the New York Stock Exchange won’t continue to list shares that trade below an average of $1 for a 30-day period. Likely as a result of this rule, announced an eight-for-one reverse share split.
That might be an easy way for HEXO stock to regain compliance with the New York Stock Exchange’s listing requirements. Yet, it’s an artificial way to pump up the stock price.
HEXO shareholders shouldn’t breathe a sigh of relief over the reverse share split. It’s only a temporary solution and doesn’t indicate any fundamental improvement in the company. Besides, it’s not unusual for a stock to decline after a company enacts a reverse share split.
The Bottom Line on Hexo Stock
Today, I’ve presented a mixed picture with both the good news and the bad news about HEXO stock.
If the reverse share split worries you, that’s understandable and you don’t have to take a position in HEXO stock. Yet, if Hexo can stay disciplined and continue to shore up its capital position, there may be hope on the horizon for HEXO shareholders.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
