Next Green Wave NXGWF stock dropped some 50% on the recent news that revenues declined; it was not pretty. But, as many of my subscribers know, this is a solid performing company. I was flooded with emails from followers/subscribers saying they would be buying at the discounted levels. Next Green Wave was already one of many undervalued marijuana stocks. The drop in revenue and subsequent drop in share price is offering the opportunity to acquire this stock at reduced levels. And, since the price is 50% lower, you can buy 2x the shares.
But, if you are already a shareholder, the drop is discouraging and that is understandable. Rest assured, management has already guided us that the drop was owed to one-off problems and that revenue, which printed $3.6M this quarter, will print $4.5M next quarter. But, the inconsistency is something that cannabis stock owners are likely going to have to be accustomed to as many companies report inconsistent numbers from time-to-time.
I am keeping Next Green Wave solidly in my Top Picks page as they perform well solidly. The temporary move lower in share priced due to the drop in revenue should be viewed as an excellent company at a significantly reduced level. Next Green Wave will continue to grow, are well capitalized, and have some of the best performing metrics of cannabis companies, the latest financial data notwithstanding.
Next Green Wave NXGWF Stock Comparison
Here is how Next Green Wave stacks up to all of the other cannabis companies in the Complete List of Top 100 Cannabis Companies.
- #44 Market Cap: $68M
- #90 Revenue Growth Rate: -25%
- #51 Revenue Per Share: $0.26
- #75 Gross Margins: 19%
- #2 Operating Efficiencies: 13%
- #23 EBITDA/Revenue: 8.3%
- #9 Cash/Debt Ratio: 178%
The real standout is the operating efficiencies in this chart. The other, of course, is the drop in revenue which put Next Green Wave at the bottom of revenue growth rate.
First, however, if you have not looked lately, I have updated the Complete List of Cannabis stocks with far more data, the one thing I got done while my laptop was on the fritz. This is helpful since you may want to look at revenue growth and you will see that there are more data points for better analysis of any one stock.
Next Green Wave NXGWF Stock Financial Data
Here is a thorough breakdown of each of the major segments of the financial data for Next Green Wave.
When you look at this chart, it is hard to see how there was so much downside to NXGWF stock when viewing the revenue picture. But, it was a 25% decrease; a significant number:
Probably the most important thing is that revenues are already projected to hit $4.5M for Q3. My thinking is that even this is restrained from where it could be. I am wondering if Next Green Wave can hit above $5M for a record quarter going into the end of the year.
Nonetheless, I fully expect that there will be a return to profitability with the increased revenues as well as metrics such as margins and costs returning to normal levels.
There was a significant drop in Gross margins. Gross margins took a hit and this is something I wanted to focus on as I think there is a learning lesson here:
I say this often that as a company pushes through more and more product you will see improvements in metrics. And, in this case, when you drop in revenue, you see declines in these metrics.
Why is that?
It is simple, really. Look at rent and employee costs. These can be fixed on some level. Building costs are fixed from month to month. But, these costs, on a relative basis, decline as more and more revenue is produced from that building. Likewise, declines in revenue accentuate the overall costs of a building.
So, if you are looking to acquire a company and you think that their revenues are on a trajectory to increase, but margins are low, keep in mind that the increased production will increase margins; all else equal.
One of the things that really caught my eye with Next Green Wave was the efficiency that management was producing revenue; they have the #2 slot out of the 100 companies I follow:
I will say this, however: revenues declined 25% but, operating efficiencies only went up 1.4% for the quarter. This is a sign that management is vigilant at controlling costs.
We often hear investors talking about management working for shareholders. This is the metric that shows that management is keeping a lid on costs and not enriching themselves or spending lavishly on operational costs (Like Canopy Growth CGC Stock).
The fact that Next Green Wave has kept these numbers as low as they are for as long as they have tell me this is consistency that can be relied upon by investors.
EBITDA Profits & Net Earnings
Despite the drop in revenue and how that affected margins, Next Green Wave produced positive EBITDA:
I think this quarter’s numbers are an excellent example of how increases and decreases affect metrics. You can see this very clearly when a company pushes through a certain amount of product, and if that amount falls short (Or, exceeds normal levels), the metrics increase on a percentage basis.
This may be the minimum level for Next Green Wave to produce product at an EBITDA level. Keep in mind, though, these guys are going to increase revenues and likely to return back to net earnings positive.
The drop in revenue pushed all metrics lower and this trickled downward to net earnings which went negative for the first time in four quarters:
Remember, revenues are going to return to higher levels. This will affect metrics all the way down the financial statement and the end result is that I believe net earnings turn positive all over again next quarter; even if it is just slightly.
Earnings Per Share
Consistent with net earnings, earnings per share for Next Green Wave are coming in at low numbers, but they are still positive:
The numbers are small and so, despite having a negative number on this chart it simply does not measure up just yet.
But, at the same time, if you looked at the previous quarters and added up the net earnings, divided that over total shares outstanding you find that the profitability is strong and the valuation of Next Green Wave is well below where it should be; Next Green Wave is an undervalued marijuana stock.
One of the chief drives of a company is to create shareholder equity. Progressively, Next Green Wave is doing that:
I have a feeling that there are some acquisitions coming up very soon. Likely, they will be stock exchanges for another company. Given that, shareholder equity will advance higher in one big move.
I want to start showing this metric more and more so that followers can get a grasp of the overall importance of these things. You want to continuously see increasing shareholder equity, small changes downward notwithstanding.
Next Green Wave is sitting on cash while simultaneously they have very low debt:
This chart is important simply because it shows what a strong longterm position Next Green Wave is sitting on. They are interested in becoming fully vertical and acquire dispensaries in California. They have the cash, and as this chart above shows, very little concerns about any cash position.
This will serve them very well if they are smart about future growth and acquisitions. This also shows that they potentially are going to make decent sized moves.
Next Green Wave NXGWF Stock Chart
The market has not been kind to NXGWF stock after the latest financial release. At the same time, NXGWF is mixed in with so many other cannabis companies that have been continuously selling.
NXGWF Stock Chart
On hearing the revenue news, NXGWF stock dropped almost 50%:
The drop was sharp for NXGWF stock. But, that may have more to do with an absolute void in players in the cannabis industry for now.
This will change. For now, I see this as a screaming buy. And, by the flood of my subscribers that emailed me saying they were going to hit the button, some of you are already in at an excellent entry price.
MSOS ETF Chart
Next Green Wave NXGWF stock is not part of MSOS, but most likely it should be.
Finally, we are seeing some movements upward in what has been a long two months downward in the broader cannabis stocks. When you step back, it appears as if the stocks in the MSOS were continuously sold off by what is likely one large player exiting. Maybe. Absent that information, the market cannot ignore profits forever as more and more players will want to earn higher yields than what is afforded by the broader S&P 500 market.
It may be that we finally have a short term bottom in place. But, time will tell. Still, if you are acquiring these stocks at this level, you are setting yourself up nicely for significant longterm profits that eventually will manifest themselves in the markets.
Is Next Green Wave NXGWF Stock A Good Buy?
Considering that Next Green Wave is already forecasting improved revenues for this quarter, the metrics will bounce back and NXGWF should return to profitability. They are in many dispensaries throughout California and sell consistently. However, I would want to see increased revenue growth as they have been stuck somewhat over the past few quarters.
They are simultaneously building out their newest facility that will be occupied at the end of next year. They have cash and are looking to acquire dispensaries. These are all positive future developments that will put this cannabis company in high-growth mode.
An Undervalued Marijuana Stock
One of the things that I will stress for cannabis stock investors is that they need to keep in mind some risks involved in acquiring undervalued marijuana stocks. This one thing is that we are going to see some moments of inconsistency. In the case of Next Green Wave, they were shifting product balances and retooling hardware. This caused shortfalls on revenue.
I see Next Green Wave as an undervalued marijuana stock with significant upside potential. They will remain in my Top Picks. I think anyone that pulled the trigger on this latest dip will be well-rewarded in the future.
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