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Why Pyxus International Inc. Is Plunging Today

By Keith Speights – Nov 8, 2018 at 12:43PM

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A dismal quarterly update dragged Pyxus down.

What happened

Any hopes that positive momentum for Pyxus Interational Inc. (NYSE: PYX) experienced earlier this month would continue were dashed on Thursday. Shares of the agricultural company plunged 23.1% as of 11:34 a.m. EST today after Pyxus reported bad news on all fronts with its second-quarter financial results.

Pyxus' Q2 revenue fell 11.7% year over year to $394.9 million. The company announced a net loss of $54.6 million, or $6.04 per share, compared to positive net income of $1 million, or $0.11 per share, in the prior-year period.

Businessman looking at red line chart going down

Image source: Getty Images.

So what

Today's decline for Pyxus shows that cold, hard reality will always win over hopes and hype. Pyxus stock soared in October after noted short-seller Citron Research tweeted that its share price could double "as long as investors are cannabis crazy."

This tweet referenced Pyxus' connection to the cannabis industry with its Canadian indirect subsidiary FIGR, which owns Goldleaf Pharm and Canada's Island Garden. Goldleaf Pharm claims a cannabis cultivation license from Health Canada, while Canada's Island Garden has a cannabis supply agreement with the province of Prince Edward Island.

But Pyxus isn't as much of a marijuana stock as it is a tobacco stock. The company's Q2 results prove it. Pyxus' dismal performance in the quarter stemmed from lower revenue with its core business of supplying tobacco leaf to cigarette makers. However, Pyxus' year-over-year comparisons for the second quarter were skewed somewhat by a significantly larger crop of tobacco grown in South America in the prior-year period. 

Pyxus CEO Pieter Sikkel noted the higher crop production last year in his comments about the company's Q2 performance. Sikkel also said that the North American tobacco market was hurt by U.S. tariffs on tobacco, adverse weather, and the strength of the U.S. dollar. 

Any major news -- good or bad -- is more likely to cause Pyxus stock to experience major swings. That's because its stock float of only 8.3 million shares is really low. Heavy trading volume that wouldn't impact other stocks very much has a magnified impact on Pyxus because of this low float.

Now what

Investors shouldn't count on a cannabis craze to propel Pyxus higher. The company should benefit as the Canadian recreational marijuana market grows. But Pyxus still makes most of its revenue from tobacco leaf sales -- and that's what will make the biggest difference for the company going forward.

The second quarter is usually a weaker period for Pyxus due to seasonality factors. Pyxus could see more strength over the next couple of quarters. In fact, the company maintained its full-year guidance. However, it's probably best for investors to stay on the sidelines with this stock for now.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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