GTEC Prints a Big Increase But Is It Too Late To Buy $GGTTF?

GTEC, like many other cannabis companies, is printing very impressive numbers this earnings season.  I took a brief look at this company earlier but, since their blockbuster revenue increase, I wanted to get a little deeper with GTEC Holdings.  If you look at $GGTTF, it has been blazing a trail higher.

GTEC Stock: GGTTTF has risen significantly in a short time

As you can see, $GGTTF is up some 600% in just a very short period of time.  Yeah… 600%

Nearly all of the cannabis stocks have been rallying on the ‘Blue Wave’ and then with the recent Reddit attack on cannabis stocks.  Since then, a large portion of these stocks have sold back to their pre-Reddit attack levels.  And, companies such as Canopy Growth $CGC, are starting to fall below these levels.

I believe that the selling will continue.  These stock valuations are out of line with fundamentals.  And, those fundamentals absolutely take into consideration the ‘Blue Wave’.  Should you be looking to get into some stocks, this selling is an excellent opportunity to get into new positions at great prices.

For now, however, GTEC appears to have avoided the selling.  Let’s take a look into the numbers to see where this stock could be properly valued.

Highlights from the latest earnings release

Here are a few highlights from the earnings release:

  • Gross Revenues rose to $7M (USD), up from $1.9M;
  • Gross Margins rose to 50%, up from 45%;
  • Increase in overall selling price of 43% to $5.46 (USD)
  • Both operating costs and production costs declined substantially

From these points, I wanted to put up some data charts to show where this all fits in and then try and value the future stock price.

GTEC Holdings Revenues

GTEC Holdings Gross Revenues
Gross Revenues saw a substantial increase QoQ and YoY
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This is a monstrous increase in revenues.  My bet is that there will be some consistency with revenues moving forward as operationally, GTEC looks established with its production capabilities.  According to the news update, they are positioned to continue forward with revenues of this magnitude.  Therefore, I will be using this in future projections.

GTEC Holdings Gross Margins

GTEC Holdings Gross Margins
GTEC Holdings is pushing near top-level margin numbers

I am looking at some 350 different cannabis companies.  While the 50% print on gross margins is a solid number, some of my top picks are hitting numbers of 60% – 65%.  I do not want that to sound as if it is a negative.  In fact, just the opposite.  This could be a positive simply because if gross margins were to improve by 10%, getting GTEC Holdings to the bottom of my favorite cannabis stocks, this adds in some ~$700k that adds to the bottom line.

I fully expect that management will push forward with this and that is one of the reasons I am looking at GTEC as a solid potential company.  This is a metric that investors should have their eyes on.  If you start to see incremental gains in margins, you are very likely to see increased gains in profits.  That translates into a higher stock price for $GGTTF.

GTEC Holdings Operating Efficiencies

GTEC Holdings Operating Efficiencies
GTEC Holdings is improving their operating efficiencies
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The downward trajectory in operating efficiencies is very positive.  And, as revenues continue to rise, this metric will continue to fall.  At 44.3%, this is within shot of some of the best companies out there.   The goal should be to achieve ~35% or lower.

Operating efficiencies is a mathematical equation.  Take, for instance, rent for a facility. It stays the same month after month.  Let’s say a company pays some $100k in quarterly rent for a facility.  If revenues are sitting at $100k, then operating efficiencies are at 100%.  Then, if revenues increase to $200k, operating efficiencies drop to 50%, and so on ad infinitum.

Please note, this simplistic explanation does not take into account many other inputs.  There are many different inputs into operations such as electricity, SG&A, and other variables.  Also, there is a big difference between operating efficiencies and cost of goods, inputs that go towards actually creating the products such as in the case of cannabis, fertilizer, water, labor, and such.

If revenues for GTEC continue to increase, then operating efficiencies will improve on a percentage basis simply because of the mathematics.

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GTEC Holdings Net Earnings

GTEC Holdings Net Earnings
GTEC Holdings is net earnings positive
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There are several cannabis companies that are turning net earnings positive right at this moment.  It seems there are many companies that are achieving this all at the same time, so kudos to GTEC.

Again, look towards gross margins.  As management gets better at producing its products and keeping costs contained, gross margins will improve from an input cost perspective. Then, if GTEC was to build up a solid following they could also start to increase their revenues by raising prices.  Both of these two potentials take time and from this point forward I am looking for gross margins to improve and contribute to the bottom line.

What Could GTEC and $GGTTF be Worth?

Future earnings multiples are trading on the S&P 500 at approximately 34x earnings.  But, the S&P 500 does not have a revenue growth multiple like cannabis does so it is very possible that the future earnings multiple could be as high as 50x future earnings.  Right now, EPS is really close to zero.

But, what if we projected merely $0.01 per share in EPS over the next 4 quarters?  That would mean that GTEC would earn $0.04 EPS for the year.  At some 50x earnings, that puts this stock at $2.00 per share.  It is currently trading at $0.60 per share.  That is about a 250% increase over what is likely to be a 1-year timeframe.

Conclusion

These numbers are solid and impressive.  I would want to see continued increases in earnings.  One report of revenues is not a trend but simply one earnings release.  If GTEC Holdings were to print the same numbers twice in a row while simultaneously increase gross profits and cut costs, the end result is an increase in the bottom line.

I believe that this company is likely to see these metrics continue and improve and for these reasons, I am going to keep a sharp eye towards GTEC.

In the meantime, cannabis stocks are selling off.  This is very likely a buying opportunity. Should you already be long, you could take profits and then get back in at a lower price.  Or, you could wait out the buying and selling that is very likely to transpire.  Eventually, this stock is going over $2.00 per share and that is very likely to occur within 18 – 24 months.

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