Please ensure Javascript is enabled for purposes of website accessibility

Why HEXO Shares Are Jumping Today

By Keith Speights - Updated Jun 11, 2020 at 10:41AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors liked the Canadian cannabis producer's Q3 update.

What happened

Shares of HEXO (HEXO 1.79%) were up 11.4% as of 9:52 a.m. EDT on Thursday, with the Canadian cannabis producer reporting its fiscal 2020 third-quarter results before the market open.

HEXO announced Q3 net revenue of 22.1 million in Canadian dollars ($16.5 million), up 30% quarter over quarter and higher than the CA$20.3 million expected by analysts. The company posted a Q3 net loss of CA$19.5 million, or CA$0.07 per share. This was wider than the Q2 net loss of CA$7.8 million, or CA$0.04 per share. It also missed the consensus analysts' estimate of a net loss of CA$0.05 per share.

So what

Investors obviously are more excited about HEXO's revenue surprise than its bottom-line miss. That's understandable. The company's wider net loss in Q3 stemmed primarily from a smaller unrealized gain on changes in fair value of biological assets compared with the previous quarter. HEXO's adjusted EBITDA, which improved from the second quarter, is a better measure of the company's progress.

Hand holding white bag with green cannabis leaf printed on it

Image source: Getty Images.

The main driver of HEXO's revenue growth in Q3 was its Original Stash value cannabis brand launched in late 2019. HEXO also attributed its sales increase to recent launches of new products including hash and oil extract drops.

One quarter with better-than-expected revenue doesn't necessarily mean that HEXO has completely turned things around after a downright horrible Q2 update. However, the company appears to be at least headed in the right direction.

Now what

Canadian marijuana stocks, including HEXO, should benefit as the retail environment improves. Investors will want to closely watch HEXO's potential expansion with its partner Molson Coors into the Colorado CBD beverage market. Perhaps the most important thing to look out for, though, is HEXO's progress toward profitability. The company is tracking toward generating positive adjusted EBITDA in the first half of fiscal 2021, which would be a major milestone in becoming profitable.

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

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

HEXO Stock Quote
$0.23 (1.79%) $0.00
Molson Coors Beverage Company Stock Quote
Molson Coors Beverage Company
$56.71 (0.02%) $0.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.