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Why Agrify Stock Dropped on Wednesday

By Brett Schafer – Nov 10, 2021 at 11:47AM

Key Points

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The cannabis company put up disappointing results for the third quarter.

What happened

Shares of Agrify (AGFY -1.79%) are dropping on Wednesday after the company reported disappointing earnings results for the third quarter. The stock was down as much as 24.3% today, and as of 11:16 a.m. EST, it was down 20%.

So what

On Wednesday, Agrify reported its earnings results for the third quarter. The company, which sells technology-empowered indoor growing systems for cannabis, increased revenue 460% year over year to $15.8 million in the quarter, with total backlog up to $117.5 million. The company is not yet profitable, posting a net loss of around $10 million in the quarter.

An indoor cannabis farm.

Image source: Getty Images.

For the full year, Agrify is guiding for $60 million to $62 million in revenue, up significantly from its previous guidance of $48 million to $50 million. This seems like good news for the business, so it is unclear why investors were so disappointed in the third-quarter report. The possible reason is that the company announced that its chief operating officer and chief financial officer are leaving the company. Executive turnover is usually not a good thing for a business, so investors likely didn't enjoy seeing this news.

Now what

Agrify is growing quickly, but it is not very profitable at the moment. In fact, the company does not even generate a positive gross profit, let alone net profit, right now. This doesn't mean that it is going to be a poor investment from here, but that it is one that comes with a lot of risks. If you are invested in Agrify, you need to expect revenue to continue growing at a high rate and profit margins to expand, if this investment is going to work out over the long haul. 

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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