HEXO (NYSE:HEXO) stock has taken quite a beating this year. Shares are down nearly 55% year to date, and have been on a steady downward decline for some time. Last July, the stock's price was hovering around $5 a share. Now, HEXO is facing the possibility of being delisted from the New York Stock Exchange (NYSE). On April 7, the NYSE alerted the company that it faced delisting because its share prices had remained beneath the exchange's $1 benchmark for 30 successive business days. Because of the pandemic, the NYSE has given HEXO until Dec. 16 to boost its share price back to $1 or higher.
To prevent shares from being delisted, management must maintain an average stock price of $1 or higher at market close for a minimum of 30 business days and conclude the final business day of any month with a minimum $1 share price by the Dec. 16 deadline. HEXO entered its initial public offering (IPO) on the Toronto Stock Exchange (TSX) on Nov. 19, 2014. The stock was priced at 1.05 Canadian dollars per share. The company began trading on the NYSE at market open on Jan. 23, 2019.
Here's what your investment would like like now if you had bought up $1,000 of HEXO stock the time of its IPO.
$1,000 would be ...
Let's suppose you invested $1,000 in HEXO stock when it first went public on the TSX at CA$1.05 per share. On Nov. 19, 2014, the rate of exchange was approximately $1 to CA$1.13. So, taking exchange rates into account, you would have been able to purchase somewhere around 1,090 shares of HEXO stock. Today, that investment would be worth approximately $817. That's a negative 18% return on your original investment.
On the other hand, if you had invested $1,000 in HEXO shortly after it was listed on the NYSE in January of last year, when shares were priced at about $5 each, you could have purchased about 200 shares. That investment would be worth a measly $150 now.
The bigger picture
Despite the abysmal returns HEXO is currently affording investors, its financial results over the past year have shown some promise. The company's adult-use revenue in the fiscal fourth quarter of 2019 was up 30% from its fiscal third quarter of 2019. Total net revenue in the final fiscal quarter of 2019 totaled $15.4 million, compared with $13 million in the third quarter. HEXO's total gross revenue in fiscal 2019 reached $59.3 million, whereas in fiscal 2018, the company reported gross revenue of just $4.9 million. This revenue spike has been largely attributed to Canada's legalization of adult marijuana use in October of 2018.
HEXO reduced its operating expenditures by 25% in the first fiscal quarter of 2020, but net revenue was down. In the fiscal second quarter, the company's net revenue jumped by 17% from the prior quarter to $17 million. HEXO released its most recent earnings for the third fiscal quarter on June 11, reporting an impressive 30% climb in net revenue to $22.1 million. The company's fiscal Q3 press release noted that consumer stockpiling was a significant factor in its overall revenue boost in fiscal Q3.
HEXO's potential delisting is concerning, and although the company could turn to dilution or even a reverse stock split as a possible remedy, these measures may be problematic for current investors. The company is remaining tightlipped as to future guidance. Amid the COVID-19 pandemic, its ability to secure licensure for new retail stores, a vital factor in its growth story, largely depends upon decisions made on the local level across Canada.
There's no doubt that HEXO has made concerted efforts to reduce its expenditures and strengthen its balance sheet. The company just launched medical marijuana products in Israel as part of a two-year contract with marijuana start-up Breath of Life International. In June, HEXO announced it was launching an at-the-market (ATM) equity program, with the authority to distribute common shares of stock up to a maximum of CA$34.5 million. But this marijuana stock has a long way to go. These changes are unlikely to translate to real profitability any time soon.