WeedMD WDDMF Stock was one of my Top Picks but, recently I pulled them off the list. When WeedMD printed their latest financial data I decided to pull them due to the fact that they fell short of my expectations. They grew YoY but, this was not organic growth it was due to the Starseed acquisition. I prefer growth coming organically. However, WeedMD is already reporting substantially increased Q1 numbers for 2021; a major plus. Expectations are for $10M for Q1 versus $4M for Q4, 2020. However, due to one-time sales and outlying issues, it is difficult getting a feel for margins and costs. Gross margins printed negative for the quarter.
WeedMD has been transforming itself into more of a premium branding company with wholesale sales. They are moving out of the mass biomass grower category. One can see the transformation in progress. But, other companies have done the same just at a different pace. Also, a lot of these other companies are already done and seeing the fruits of the transition. I would be interested in a company that leads the pack, not one that is in the back of the pack. Still, the future expectations are impressive and will go well towards pushing WDDMF stock upwards.
WeedMD WDDMF Stock
On the one hand, WDDMF stock is at the very bottom and has nowhere else to go but up. On the other hand, time is money, and waiting around for the stock to move may mean missing out on other opportunities. Here is a look at the chart over the past two years:
WeedMD Stock has not reinvented the wheel here with price movement; WDDMF Stock has moved in sync with just about every other cannabis stock out there. So, the question becomes: Can WeedMD differentiate itself from other cannabis companies, setting themselves apart and allowing the stock to move at a different pace than other cannabis stocks?
Breaking down the latest financials will help sort this out.
Revenues for the quarter went down. Despite this, unaudited revenues for Q1, 2021, are already expected to be ~$10M, and Q2 is looking equally as impressive:
I have not included the latest revenue in the chart above, obviously. That data is still unaudited. This would be record-setting for WeedMD. Despite this, it is other metrics that have me giving pause. Outlying variables and sales are affecting consistency in numbers.
Here are gross margins on current revenues:
Hmmm… how do you determine what is going to be next for this cannabis stock? Something to keep in mind is that despite the transformation of WeedMD, They are going to start printing more consistent numbers and likely to improve upon these metrics. Then again, I would think that margins at -167% could only be improved upon.
This is something important to me regarding WeedMD. I want to see consistency. If a company prints consistent numbers then as an investor it is easier to determine what is going to come next. But, with WeedMD, there is no consistency. At the very least I can expect that margins will be positive. However, by how much? And, will it be positive this time? At the same time, margins could easily move back upwards to the levels that were there just in the previous quarter.
Because of this inconsistency, it is difficult to determine what to do with this stock right now.
Total Operating Costs
Operating efficiencies are another metric that missed its mark with my expectations this quarter:
In the latest earnings call, management stated that they doubled sales personnel. That is good news for future sales. This also accounts for the increased efficiency numbers we see in the chart above. But, what we do not see is increased revenues to accompany this. That will change with the upcoming quarter.
But, for the record, total operating costs were ~$9M for the past quarter. Q1 is supposed to be $10M. This still keeps this number out of line for some time. On the other hand, increased sales personnel and infrastructure will only improve top-line revenue. Given that, look for this to improve significantly over the next three quarters of 2021.
EBITDA Profits & Net Income
With such a drop in gross margins it is only natural that EBITDA was negative for the quarter:
The fact that there was EBITDA profitability the previous quarter is a strong start for where WeedMD is right now. If revenues improve to levels that are impressive then potentially EBITDA can turn positive again. For now, the big hit will affect cash on hand and other factors.
Is WeedMD WDDMF Stock A Good Buy?
In general, I was a bit disappointed with the latest revenue numbers and bottom line finals. But, the fact that there is going to be such a positive increase in revenues in the upcoming quarter is something to take note of. I had expected that the elevated revenue would have hit the previous quarter; it did not.
I can see this as a theme running with WeedMD. Current numbers are disappointing. Future numbers are improving. But, what will the margins & costs look like for the future? This is where I begin to question getting into this stock. There needs to be consistency in the financial statements. For now, gross margins are all over the board and this makes it impossible to reasonably determine what could happen in the future.
At the same time, there are ample other companies in the sector that are showing impressive numbers while also showing consistency with metrics.
For these reasons, I’m going to tap out of WeedMD. I will give them another 2 quarters and take another look. I need to see consistency and the fact that they are including new revenues from the recent acquisitions will give an investor more to lean on to determine what is possible.
However, I will point this out: The stock is all the way at the bottom, and the potential for this stock to take off exists. That makes things difficult. The fact that this is a company that may start generating increased revenues and profits and its stock is at such low levels is an opportunity in itself. Still, I will opt for other opportunities.
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