Are you looking for a cannabis stock that can double in value? The Horizons Marijuana Life Sciences ETF is already up more than 55% this year, and many stocks are trading at or near their highs. And that means finding an attractively priced investment in the industry isn't getting any easier.
However, there are a couple of pot stocks trading below $5 that you will want to put on your watchlist right now: Harvest Health & Recreation (HRVSF) and Auxly Cannabis Group (CBWTF 3.51%). Given their modest valuations and attractive growth opportunities ahead, it wouldn't be surprising to see these stocks double in value within the next year.
1. Harvest Health
Harvest Health released its fourth-quarter and year-end results March 30. Sales for the quarter ending Dec. 31 totaled $69.9 million and grew 85% year over year. A reported adjusted EBITDA profit of $9.1 million was a big improvement from the $8.8 million loss it incurred a year earlier. Harvest Health bolstered its bottom line as it benefited from the sales growth while also bringing down its selling, general, and administrative costs by more than $5 million.
One of the most exciting reasons to invest in this stock is that it's in a great position to benefit from one of the newest marijuana markets to open up: Arizona. That's where Harvest Health is based, and with 15 dispensaries in its home state, it is also where the multistate operator's largest footprint is. Although the company's dispensaries have focused on medical marijuana products, Harvest Health has been quick to adapt to Arizona's 2020 legalization of recreational cannabis. As of Jan. 22, all of its Arizona-based dispensaries serve both medical patients and adult-use customers.
For 2021, the company projects revenue will reach $380 million -- a 64% increase from the $231.5 million it reported for this past year. With a market cap of $1.2 billion, that would put this cannabis stock at a forward price-to-sales (P/S) multiple of just over 3. That is significantly lower than where other multistate operators trade:
At a cheap valuation and poised to post some strong numbers in Arizona, Harvest Health could easily double in value from where it is now.
Canadian pot producer Auxly is even smaller, with a market cap of just $230 million. At $0.3074 per share, you can buy the stock for less than what you'd pay for a cup of coffee. The company is unique in that unlike many Canadian-based cannabis producers, it is expanding into cannabis 1.0 products -- which includes dried flower and other products that were available in Canada prior to the launch of the edibles segment in late 2019.
In terms of 2.0 products -- the derivatives including edibles and beverages that many of its peers are targeting -- Auxly is already doing well. According to data from Headset, it was atop the segment in 2020 with a 14% market share across Canada. Over the company's past three quarters, its net sales totaled 31.9 million Canadian dollars -- up more than sixfold from the previous year. But that isn't surprising given the company's preexisting focus on the relatively new 2.0 market. If Auxly can generate good results from its 1.0 products and pad its fast-growing top line, the company's valuation could quickly skyrocket, as higher sales numbers could help attract more investors. I also see this as a company that could make for an attractive acquisition by a larger producer looking to quickly add to its market share.
One of the reasons the stock's price may not be higher than it is right now is that investors simply aren't paying much attention to Auxly. Despite its positive results from the 2.0 market and a low stock price, Auxly's 30-day average volume is relatively low compared to other stocks in the sector:
And that's a trend that is consistent when looking at Auxly's forward price-to-sales ratio, which at a multiple of 3 is also much lower than the other cannabis stocks noted above (HEXO is the cheapest, and investors are still paying way more at 7 times its future sales).
Auxly still has a lot to prove. Can it maintain its dominance in the 2.0 market? Can it improve its bottom line, which was a negative CA$17.9 million for the period ending Sept. 30? If the answer to both is yes, this is an investment that may be worth taking a chance on. But if you don't want to take on the risk, a safer option may be to reassess after the company releases its annual results, which could come out as early as this month.