Please ensure Javascript is enabled for purposes of website accessibility

Why Village Farms International Stock Sank as Much as 20.5% Today

By Reuben Gregg Brewer - May 10, 2021 at 12:46PM

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

The hydroponics produce and marijuana grower reported earnings, and investors weren't pleased.

What happened

Shares of Village Farms International (VFF 2.03%), a company that uses hydroponics to grow produce and marijuana, fell a dramatic 20.5% on Monday. The big news was the company's earnings, which were mixed, at best.

So what

From a top-line perspective, Village Farms saw growth of 63% thanks to its move into the cannabis space. That division went from zero revenue to $17.4 million. The core hydroponics produce business, meanwhile, saw revenue grow 9% to roughly $34.9 million. All in, the company's revenue in the first quarter of 2021 was about $52.4 million. None of this would seem to be bad.  

A family on a rollercoaster with their arms in the air.

Image source: Getty Images.

The real problem was below the top line, with adjusted EBITDA falling 63% from $1.1 million to just $400,000. The majority of the weakness showed up in the produce operations, based on historically weak tomato prices. In addition, the company's branded marijuana sales were up 20%, but its nonbranded sales fell 49%. So even in the company's fast-growing cannabis operation, the picture was somewhat mixed. On the bottom line, Village Farms lost $0.10 per share in the quarter, down from a profit of $0.08 per share in the same period of the prior year. There were more nuances to the earnings update, but clearly it wasn't good enough to satisfy investors, many of whom obviously chose to sell the shares on the news.  

Now what

There's one more issue that's important with regard to Village Farms International: investor sentiment. Although even after today's drop, the stock is up around 150% or so over the past year, its gain was as high as 450% at one point in February. A changing view of the marijuana sector is a big piece of that, since the company's hydroponic produce division isn't likely to inspire the huge price gains or losses seen over the past year even though it is still two-thirds of the business.

In other words, Village Farms is a story stock, and it appears prone to the buying and selling of often-mercurial investors. Unless you have strong feelings about the long-term future of the marijuana industry, where the company still plans material investment, it's probably best for most conservative investors to avoid this roller coaster ride for now.  

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Village Farms International Inc and Village Farms International, Inc. 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

Village Farms International, Inc. Stock Quote
Village Farms International, Inc.
VFF
$3.02 (2.03%) $0.06

*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
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

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.