On (very) rare occasions, you can have your cake and eat it too when you're investing in cannabis stocks. Trulieve Cannabis (TCNNF 0.07%) has had a rough year, falling by 25% amid a backdrop of many of its compatriots shrinking or significantly underperforming the market.
With that shakeout hopefully in the rear-view mirror, I'm of the opinion that this stock is ready to soar once again. Between its favorable valuation, steady progress in opening new dispensaries, and strong financial performance, 2022 could be the year of Trulieve -- let's explore why.
Priced at a discount, but still firing on all cylinders
Compared to its peers in the cannabis industry, Trulieve is a steal right now.
Its price-to-sales (P/S) ratio is about 3.8, which is significantly lower than the industry's average of 7.84. That might mean the market is generally pricing in faster growth for the company's competitors, but investors shouldn't be too bothered. After all, many of Trulieve's peers are unprofitable and still deep in their attempts to become established in their markets.
In contrast, Trulieve is profitable and already deeply entrenched in its home market of Florida, where it'll be operating 113 stores by the end of 2021. It's also looking to continue its expansion into new markets in lucrative states like Massachusetts and Pennsylvania. In October and November of this year alone, it opened six new dispensaries, for a total of 26 in the Northeast. Next year, it'll be expanding its regional footprints in the Northeast and Southwest even further, and new revenue is likely to be plentiful.
That's not to imply that Trulieve is short on inflows at the moment. Over the past 12 months, its quarterly net income has risen by more than 512%, while its quarterly revenue has grown by just over 33%. And, since late 2019, its cost of goods sold (COGS) has fallen sharply as a percentage of its quarterly revenue, reaching 31.3%, which has supported its margin.
In sum, profits are soaring while the company is expanding stridently, and that's yet another reason why it could make shareholders richer again next year.
Product innovation could drive even more returns
While Trulieve's burgeoning presence nationwide will be a larger source of growth, the company is also developing and launching new cannabis products that could be home runs. Its new TruTonic beverage powder unites the relaxation of cannabis and the refreshment of a sports drink in one package. Trulieve recently started to carry several types of gourmet cannabis-infused chocolates produced by Bhang (BHNGF). While gourmet cannabis chocolates and cannabis drink powders probably appeal to very different demographics, both may see wide adoption over the next few years as cannabis use becomes less stigmatized amid legalization efforts.
As bright as its future is, investors should be aware that Trulieve doesn't have an economic moat to protect its market share from erosion by competitors. In the next couple of years, that's unlikely to matter, as the cannabis market itself is likely to continue growing. Beyond that, the company's base of revenue may come under threat. Management has plenty of time to make plans for that eventuality, however, so it's far too soon to say that there will be a pullback.
Overall, Trulieve has quite a few tailwinds going into 2022, and the stock is ripe for a purchase today. As with all cannabis stocks, people with a low tolerance for risk would probably be better served by investing in a company that sells more than marijuana products alone. The other side of the coin is that Trulieve is one of the most consistently well-performing cannabis pure plays out there, so it could be hard to do better with one of its competitors.