Shares of multi-state operator Ayr Wellness (AYRW.F 4.22%) have fallen by 66% over the past year, performing only slightly worse than the Horizons Marijuana Life Sciences ETF, which has declined by 58%. The cannabis stock has hit a new 52-week low in the process.
The good news is that Ayr Wellness released a strong fourth-quarter earnings report this month, which should at least give investors some hope that the business is going in the right direction. Is the stock due for a rally, and could now be the time to buy before the share price takes off?
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Ayr's revenue more than doubled in Q4
On March 17, Ayr Wellness reported its fourth-quarter results. Its revenues rose 134% year over year to $111.8 million, while its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose by 40% to $26.1 million, giving it an impressive adjusted EBITDA margin of 23.3%.
This growth was driven largely by the company's expansions both in new markets and those in which it was already established. And it plans to invest in more opportunities this year.
Revenue run rate is expected to hit $800 million by the end of the year
Management projects that for the first half of 2022, Ayr's performance will be flat due to construction and regulatory issues. However, as the company expands in markets such as Massachusetts and New Jersey (which should commence adult-use recreational sales within weeks, according to New Jersey Gov. Phil Murphy), its annual revenue run rate should close in on $800 million before the year is over. Right now, it has a run rate of just under $450 million.
Other catalysts that are expected to support that growth include cultivation expansions, organic growth, and acquisitions. Today, Ayr Wellness has 71 dispensaries up and running. By the end of 2022, it expects to have more than 90. The company has roughly $70 million in capital spending planned for the next 12 months which will increase the area of its cultivation and production facilities from 557,100 square feet to more than 1.2 million.
That's a lot of growth on the horizon for Ayr Wellness, and a key question is whether it will need to issue new stock to help pay for all that. As of the end of 2021, the company had $154.3 million in cash on the books. That will be sufficient to fund its day-to-day operations, which during the course of the past year used up $27.8 million. However, Ayr Wellness also spent $219.6 million in investing-related activities in 2021, including $100 million on the purchase of plants, property, and equipment. As the company aggressively grows its business, the one drawback may be its inevitable need to raise more cash, likely through the equity markets -- which will mean more dilution for existing shareholders.
How Ayr's valuation compares to other pot stocks
Based on their forward price-to-sales ratios, Ayr Wellness looks cheaply valued compared to some of its key rivals in the marijuana industry:
AYRWF PS Ratio (Forward) data by YCharts.
Trading at a modest valuation and possessed of numerous growth opportunities, Ayr is a potentially attractive investment. Although investors may not be willing to pay the same premium for it as they are for larger marijuana companies like Curaleaf Holdings or Trulieve Cannabis, Ayr Wellness definitely isn't an expensive MSO to invest in today.
Should you buy shares of Ayr Wellness today?
What makes Ayr Wellness a promising buy is that not only is its stock cheap, but that the company operates in some of the top cannabis markets in the country, including Florida, Illinois, Pennsylvania, and Arizona.
However, the lack of progress on legalizing marijuana at the federal level in the U.S. is causing many growth investors to shy away from the sector. As such, even these strong results from Ayr Wellness and its impressive forecast for 2022 may not be enough to get its shares rallying.
However, for investors who are willing to remain patient, there could be significant upside here, as the company's shares haven't been cheaper than they are now.
