High Tide: $HITIF, reported earnings for the October quarter and year-end. The numbers were solid and consistent with my analysis of the company: It is a great company to own! Revenues increased ~20% QoQ. Gross margins remain consistent at approximately 37% for the quarter. Net earnings for High Tide were down slightly QoQ, however, the company has just reported two consecutive quarters with positive net income. High Tide is an excellent company with strong fundamentals and these are the reasons it has been one of my favorite cannabis stocks.
For now, the stock price has been muted from the reaction. Yesterday’s activity saw significant upward movement in cannabis stocks across the board.
I still believe there will be a general sell-off in cannabis stocks. And, I believe that $HITIF will come down because of that. The impetus is simply that too many cannabis stocks are fundamentally priced too high right now, such as Tilray $TLRY, Canopy Growth $CGC, Aurora Cannabis $ACB, to name a few.
If there is selling in the cannabis sector, I believe that High Tide’s stock will come down but, that should be met with arms wide open and buy orders. High Tide is set to outperform a significant number of other cannabis companies.
Let’s look at the preliminary financial numbers for High Tide.
High Tide Revenues
In a near-linear move, revenues continue upwards for High Tide. Impressive. Mind you, if you have seen other company’s financial numbers, they are not nearly as impressive as this. High Tide, along with a few other companies I have in my model portfolio, all exhibit outstanding revenue growth and have done so for many consecutive quarters.
This quarter’s numbers are up ~20% for High Tide. However… and we all make mistakes… the corporate release has the numbers QoQ as 118%. I’m thinking the first “1” on that was a typo, but I input the numbers into my own spreadsheet and found this to be about 20%.
Moving forward, with economies-of-scale, EBITDA profitability and Earnings Per Share will be greatly affected in a positive manner with continued upwards increases like this.
High Tide Gross Margins
I love consistency when analyzing a company. If you are getting consistent data points then you can reasonably project into the future what will happen with those data points. In the case of High Tide’s Gross Margins, I’m not exactly sure that is a good thing.
Some of my very favorite companies in this Model Portfolio of cannabis stocks have gross margins of 65%. This makes High Tide’s gross margins a small concern. On the one hand, they are printing consecutive EBITDA profitability and are doing so on low-number margins. On the other hand, if High Tide were to push their gross margins upwards over the course of the next few quarters, this will go a long way to adding to the bottom line.
Consider if High Tide pushed from 37% where they stand right now to 67% and be the leader in gross margins. If they did that it would add up to $6M more in bottom line addition. This is significant seeing that High Tide only printed $3M this quarter in EBITDA earnings.
This is the only smudge that I see with High Tide. Generally, I like this company across the board. But, I would want to see higher margins. I think that becomes a natural progression. Because of that, it also becomes an opportunity. Management will eventually address this concern. High Tide will continue with branding their premium products (only about 10% of sales come from wholesale, the rest premium).
I see this all as a future opportunity.
High Tide Net Income
This will be the trend I am looking towards for High Tide; their net earnings results. I am working on the preliminary press release so I do not have the complete data. This will take about 2 – 3 days for systems to update and me to go through. Nonetheless, there is enough information in the data for me to work with.
Net income, printing two consecutive positive earnings numbers, is a trend that will eventually produce great results for EPS.
Given the current earnings and previous earnings, and projecting increased revenues with continued margins, my expectation is that we see about $0.06 per share in future earnings. At an earnings multiple of between 30x and 50x future earnings, this pushes $HITIF stock up to about $2.50 – $3.00 per share.
With the current price of $0.70 per share, this is about a 250% increase. This will take just about 6 – 10 month’s time.
I still believe the market is going to offer us a huge gift and sell-off. If this happens, given what High Tide can do as a stand-alone company, you would want to buy into this company.
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