Exceptional growth stocks are getting hammered in this troubled market. The pot industry, which has already been on a roller-coaster ride for the last two years, is taking an even harder hit. The added pressure of market pessimism toward cannabis reforms has affected the companies' stock prices.
But what if I told you that this presents an excellent opportunity to buy these growth stocks on the dip? The industry is nascent, with huge potential to shine. Growth stocks in general take time to price in the company's performance. One such pot stock is Illinois-based Green Thumb Industries (GTBIF -5.60%)
Investors willing to take a long-term view of Green Thumb could be rewarded handsomely as the marijuana market expands. From revenue of $216 million in 2019 to $894 million in 2021, this multi-state operator (MSO) has come a long way. Let's elaborate on how this growth stock has more room to run.
Another spectacular quarter for this MSO
Green Thumb's ability to post profits for nine consecutive quarters in a highly competitive industry is what I admire about this pot stock. Meanwhile, most of its Canadian counterparts, Aurora Cannabis and Canopy Growth are struggling to hit profitability.
Some key advantages of this MSO are its vast national reach and its edibles segment. In 2021, it entered three new markets. The company has gone from 39 stores in 2019 to nearly 80 dispensaries now in 15 states, and its aggressive expansion strategy has worked in its favor. Plus, its edibles brand Incredibles (gummies and chocolates) has ranked in the top five of the 20 best edibles in the market.
Perhaps these factors helped it bring in revenue of $243 million in the first quarter, a surge of 25% year over year. A GAAP net income of $29 million came in higher than $10 million in the year-ago period.
A bullish outlook
The company's home state of Illinois, which legalized recreational cannabis in 2020, has been a strong market for Green Thumb in the last two years. It operates 10 stores there.
Management now looks forward to boosting revenue with New Jersey and other upcoming markets. To answer the question, it has a high chance to bloom again if state legalization continues to ramp up. At the rate at which this MSO is expanding, revenue and profits could get even better. It has opened 10 stores so far this year.
The company is also financially stable to fund its expansion plans. Green Thumb ended its Q1 with $175 million in cash. It also generated a ninth consecutive quarter of positive cash flow from operations of $55 million. Getting capital is still an issue for cannabis companies, as the drug is prohibited at the federal level. Hence, positive cash flow from operations will allow Green Thumb to repay its debt and fund future growth strategies.
There is a mismatch
External headwinds have created a vast mismatch between cannabis companies' fundamentals and their stock prices. Generating close to $1 billion in revenue in a limited legal market is a big deal in itself. Things can turn around quickly in an evolving industry. And when that happens, pot stocks will have more room to run. The marijuana industry in the U.S. could grow at a compounded annual growth rate (CAGR) of 14% to be valued at more than $70 million by 2030.
Green Thumb's stock is also cheap now, trading at a price-to-sales ratio of 2.7. Stronger earnings numbers or any positive movement toward cannabis reforms in the near future could make this stock skyrocket.
GTBIF PS Ratio data by YCharts
Analysts foresee a potential upside of 169% for Green Thumb's stock in the next 12 months. Buying this undervalued stock on the dip now (trading almost 68% below its 52-week high) would be a smart move, rather than when it gets expensive.
