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Could Ayr Wellness Be a Millionaire-Maker Stock?

By Zhiyuan Sun - May 11, 2021 at 6:10AM

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Here's what's so special about the No. 1 most profitable cannabis operator in the country.

Founded in 2017, Ayr Wellness (AYRW.F -3.01%) has quickly become one of the most popular cannabis brands. On April 26, it opened its 50th dispensary, with plans to bring that number over 60 by the end of the year. The company has a vast selection of flowers, pre-rolls, concentrates, vapes, tinctures, topicals, as well as edibles.

Ayr Wellness stock is already up more than 360% over the past 12 months. Can it continue its momentum and make some investors millionaires? 

Dispensary owners discussing sales in a store.

Image source: Getty Images.

Can you count on Ayr Wellness?

The firm's operating cash flow margin currently stands at 22%, putting it at the top spot in the marijuana industry. The secret sauce behind its success stands at its ability to mass produce high-concentration THC strains that are well above 25%.

What's more, Ayr Wellness also did well in terms of real estate positioning. Its flagship Henderson, Nevada store is strategically located at the center of 300,000 residents within a five-mile radius. The dispensary generates $35 million in sales at an annual rate, representing 12.5% of Ayr Wellness' $280 million in fourth-quarter 2020 revenue annualized. Over 1,400 customers visit the store each day.

Ayr Wellness made a big move into the Florida market with its $290 million acquisition of Liberty Health Sciences. The deal closed in February. It added 31 stores to Ayr Wellness' banner, with an additional 11 set to open by the end of 2021.

At the moment, the combined company sells more than 475 different products at its dispensaries. It wholesales 90 of them at 90 dispensary partners across the nation. Aside from doing mergers and acquisitions, Ayr Wellness also has the funds to grow organically. The firm is looking to invest $127 million into capital expenditures this year.

In 2020, Ayr Wellness grew its revenue and operating income less noncash expenses (EBITDA) by 25% and 63%, respectively, to $155.1 million and $56.2 million. Those numbers are on track to explode this year as the company integrates its new assets in Florida and expands to new markets like Arizona. It also plans to increase its cultivation capacity by 85.4% to 1.027 million sq. ft.

The company is doing well capital-wise. Currently, it has $200 million in cash compared to a debt balance of $232 million. Keep in mind that Ayr Wellness is also very profitable. The company generated $22.1 million in free cash flow in the past year.

What's the verdict? 

Ayr Wellness stock is pretty expensive, trading at 5 times revenue and 64 times free cash flow. However, it is a bargain compared to peers, trading at around 6.7 times EBITDA vs. the industry average of 14.7 times EBITDA.

One of the metrics fueling investor skepticism surrounding the pot grower is its lackluster growth in 2020 and its acquisition-driven strategy. I think those concerns will be put to rest as it continues to scale its high-grade THC strains. Overall, this is a fantastic value-based pot stock for investors' portfolios that could become a millionaire-maker in a decade or so. 

Zhiyuan Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ayr Wellness. The Motley Fool has a disclosure policy.

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