TStock for HEXO Corp. (NASDAQ: HEXO) saw a dismal plummet after a session netting in a decent gain of 9.5%. The premarket is where the tides for HEXO shifted and gave investors a loss of near 11.3%. Reversals of a similar nature and scale took place frequently throughout the course of the previous months for HEXO. Each of these had been triggered off by different events within the market. In regards to the present shift, it is yesterday’s earnings release that jolted market sentiment into a swing in the opposite direction.
HEXO Financial Specifics
The Canadian cannabis company’s fate saw a shift with a recent press release. Yesterday’s earnings release raised substantial red flags for investors that were taking long positions with the stock, undermining growth potential. The following domains were of particular concern:
- Liquidity position worsened in a six-month period, falling from CAD 67M to CAD 37M. This fall in cash equivalents substantially enhances risk associated with the stock.
- Revenue saw a climb from CAD 87M to CAD 142M. This, however, did not lead to optimism given the heavy cost of sales this year. As a result, gross profit fell from CAD 36M to a gross loss of CAD 35M
- Given a substantial shoot up in operation costs, net loss shot up from CAD 25M to CAD 807M. This reflected in the net loss per share climbing from -0.21 per share to -2.66 per share.
Given these disappointing financials, it really is no surprise as to why traders have been rushing to get rid of HEXO holdings. The stock clearly has all indicators of an investment bound to burn off capital.
Evidently, the breakthrough comes as a surprise, given earlier perceptions towards the stock. Only two weeks ago, Canaccord Genuity upgraded its grading of HEXO from hold to speculative buy. Similarly in January, Jefferies also upgraded the stock’s grading from underperform to hold.
Conclusion
HEXO’s ambitious growth trajectory had come to an abrupt halt and a subsequent tumble following the release of its earnings report. Therefore, the stock was clearly a risky investment given its disappointing progress over the year with liquidity worsening, and net loss seeing a dramatic rise. As a result, the cannabis stock has a rough patch ahead in salvaging its perception amongst market participants.
