Canadian producer Hexo Corp (NYSE:HEXO) was one of the high-flying cannabis stocks back in 2018 and early 2019. It soon became a poster child for investors fleeing the cannabis market after myriad challenges and a failure to come anywhere near expectations. In a one-year period from April 2019 to April 2020, Hexo stock lost 94% of its value. And that’s after rallying from the March 2020 stock market crash. The situation became so grim that the stock was in danger of being delisted.
In 2021, HEXO stock has once again been rallying. After posting another big gain on Tuesday, shares are up more than 100% since the start of the year.
With a “B” rating in Portfolio Grader and coming off a miserable fiscal year, Hexo is far from risk-free. But if the company has finally righted the ship, now might be the time to think about it if cannabis stocks are on your mind.
A Near-Death Experience
Hexo shareholders lived through a tumultuous 2020. In an attempt to turn things around before it was too late, Hexo announced in the month prior that it had hired a new chief financial officer (CFO). It may have been the right move, but hiring your fourth CFO in just two years doesn’t necessarily inspire confidence.
As last October wound down, the company reported its fiscal 2020 results. Capping four straight money-losing quarters, it painted a grim picture of write downs, impairment charges and even a 4.8 million CAD loss on an “onerous contract.” The net loss for fiscal 2020 was 546.5 million Canadian — 685% larger than the previous year.
With concerns mounting that Hexo stock might be delisted from the New York Stock Exchange for trading below $1 for 30 days, the company also announced plans for a reverse stock split. That plan was approved by shareholders in December. With Hexo stock gaining ground prior to the big day in December, the planned 8-for-1 split was able to be reduced to a 4-for-1 split.
Making Gains in Canada
All the financial maneuvering isn’t going to help Hexo if the company can’t find a way to be profitable. However, there are some signs that its position is improving in the Canadian market. In December, the company kicked off a campaign positioning its UP brand. The campaign highlights UP products’ higher THC content, trying to win over consumers who had avoided legal marijuana stores in favor of more potent black-market weed.
In August, the company announced a partnership to launch a new line of cannabis-infused beverages under the Truss brand. The cannabis beverages started hitting store shelves in December, and they address a big gap in the Hexo product lineup — consumers who want the cannabis high, but don’t want to smoke marijuana.
Bottom Line on HEXO Stock
For the most part, analysts don’t seem convinced that HEXO stock is going to maintain its current levels. The Wall Street Journal is tracking 14 investment analysts who follow the stock. They give HEXO a consensus hold rating with a $4.13 target price. After Tuesday’s gains, that’s well over 40% downside.
On a more positive note, only one of those analysts has HEXO rated as a sell. In contrast, a month ago five of the analysts were recommending clients sell their shares.
So, is Hexo worth considering if you want to add a cannabis stock to your portfolio? Last year, this stock would have been risky. Even as 2020 wound down and Hexo shares began to rally, it was still making lists of companies in danger of having their stocks delisted. However, 2021 may just be the year where everything finally clicks. With growth of more than 100% so far in 2021, HEXO stock is making a better case for investors than it has since the heady days of the 2018 cannabis-stock rush.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.
