Please ensure Javascript is enabled for purposes of website accessibility

Why Village Farms Could Make You Rich in June and Beyond

By Zhiyuan Sun - May 31, 2021 at 5:19AM

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

Here's how this diversified cannabis company can add muscle to your portfolio.

Village Farms (NASDAQ: VFF) is a well-established grower of agricultural produce and cannabis that is looking to expand worldwide. It has an ambitious goal of becoming the top cannabis producer in Canada and is working toward capturing at least 20% of market share in the dried cannabis category.

That dream suffered a setback recently due to somewhat disappointing quarterly results that have caused the stock to lose almost half of its value since February. But investors who buy the dip on good businesses that are temporarily faltering are often amply rewarded for their courage. Let's look at why Village Farms stock can make you richer.

Person tending cannabis plants.

Image source: Getty Images.

Can you count on Village Farms? 

During Q1 2021, Village Farms' sales grew by 63% year over year to $52.1 million. The increase was primarily driven by the company's acquisition of 100% of its cannabis subsidiary Pure Sunfarms, which added $17 million in revenue outside of its produce segment. At the same time, the company's earnings fell to a marginal loss from a marginal gain.

The unimpressive results were at least partly because of the lockdowns initiated by Canadian provinces to combat a third-wave outbreak of the coronavirus in the face of vaccine shortages. This hurt supply chains and forced many retail stores to close. However, Canada is exponentially ramping up its vaccination rates by now, so sales should go back to normal pretty soon. Despite the (less severe) lockdowns, Pure Sunfarms brought in CA$76.1 million in revenue and CA$13.8 million in profits, near the top of the industry.

That's good news, as Pure Sunfarms is one of the most notable cannabis brands in Canada. Its dried flowers hold the No. 1 position in the country's most populous province of Ontario by sales volume. What's more, the company's vapes, bottled oils, and gummies have been on sale since the fourth quarter of 2020.

Canada isn't the only country where Pure Sunfarms has cannabis operations. It is cultivating 130 acres of land across four facilities in Texas that could be rapidly converted into pot production. On top of that, the company owns a 12% stake in Altum International, which seeks to be commercially active in the CBD sector across East Asia and Oceania in the next three months. Finally, the company invested in DutchCanGrow to pursue one of 10 licenses for supplying legal recreational cannabis in the Netherlands.

But Village Farms isn't just about cultivating cannabis, either. The company's core operations consist of growing tomatoes, cucumbers, and peppers in greenhouses. That might sound boring, but the company is really good at what it's doing. In 2020, its agricultural produce brought in $157 million in revenue. Due to the company's high-tech greenhouse technology, it can grow veggies using 86% less water and 97% less land than cultivating outdoors, leading to higher yields. 

Plenty of room to grow

Village Farms stock currently trades at just 3 times forward revenue, which is much cheaper than the industry's average range of 8 to 37. Investors were very enthusiastic about the company's potential back in February and bid up its stock to nearly 7 times forward revenue. However, they were disappointed when Village Farms announced Q1 earnings and its cannabis segment did not perform as expected.

As discussed previously, a one-time, temporary setback to cannabis distribution due to tougher coronavirus containment measures isn't a good reason to ditch the stock. Overall, given its upcoming return to growth, international cannabis expansion opportunities, and solid produce revenue to fall back on, this is a top-notch cannabis company for investors to check out. 

Zhiyuan Sun 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
$3.13 (-1.57%) $0.05

*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
377%
 
S&P 500 Returns
123%

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

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.