Organigram Holdings (NASDAQ:OGI) has gone from a smoking investment to getting smoked over the past month. But going forward, a discounted OGI stock may offer longer-term value to shareholders willing to ignore Wall Street’s transitory sideshow. Let me explain.
OGI stock. It’s been labeled a meme stock alongside names GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC). The ignominious grouping is tied to a surge in price volatility this year driven by the likes of upstart brokerage Robinhood and Reddit’s r/WallStreetBets band of retail marauders.
But the buck doesn’t stop there for Organigram.
Importantly, OGI is more theme than meme. And after swinging higher by roughly 250% in a handful of days in February, then violently crashing in similar fashion, it would be a mistake to dismiss the company as a silly one off and sideshow. The thing is OGI is a cannabis stock producer offering relative and real value inside a market poised for secular growth.
Why OGI Stock?
There is, of course, the tailwind of a new Biden administration and Democratic-controlled Congress that has Wall Street’s attention. And rightfully so. The White House has made it loud and clear that along with growing adoption for cannabis at the state level, they’re pushing for federal legalization. But there’s another layer to the OGI story than an increasingly favorable environment for marijuana stocks.
Today, this smaller Canada-based outfit is differentiating itself from many of its peers in favorable ways.
In walking the aisle, red ink remains an issue. But OGI isn’t special in that respect. Even the group’s 800-pound gorilla Canopy Growth (NASDAQ:CGC) issued a much wider-than-forecast and growing loss in February.
Importantly, losses aren’t unique for growth situations like OGI. More critically, Organigram’s most recent quarterly results revealed solidly improving double-digit recreational cannabis gross and net revenue growth. What’s more, OGI fetches less than 10x forward sales. That’s roughly one-third the 30x sales multiple that CGC stock maintains.
There’s another point to consider as well. Long after the meme crowd has turned its attention elsewhere, this cannabis-themed stock’s cash reserves, which measured $134 million entering 2021, is important. The war chest should act to support other OGI investors focused on the outfit continuing to cultivate its business without the near-term pressure of turning a profit or being cash-flow positive.
OGI Stock Weekly Price Chart
Source: Charts by TradingView
Technically, there’s also growing evidence on OGI stock’s price chart to support a nearby purchase decision. As the provided weekly snapshot of Organigram shows, the steep correction from February’s high appears to be bottoming.
Over the past month, shares of OGI have produced a series of lower highs and lows. The pattern has potentially found a meaningful low with the development of a doji candlestick, which tested the stock’s 76% Fibonacci retracement level. The extreme pullback is a nice counter to February’s peak, which similarly failed at OGI’s 76% resistance level tied to it’s 2019 all-time-high.
Currently, shares are forming an inside weekly candlestick with stochastics neutralized. But it’s not yet indicating a bottom. Confirmation on those fronts could change rapidly, though. A rally through $3.54 accompanied by a flattening indicator or ideally, a bullish crossover, would be decent-looking evidence for that sort of thing and gaining exposure to OGI stock.
Lastly and bottom-line though, to stay with today’s theme-based cannabis investment and removed from a meme-driven and less-decisive purchase, when and if that day does arrive, a modestly out-of-the-money April or June bull call spread looks like the right way to position for meaningful upside without getting smoked.
On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
