Hollister Biosciences HSTRF Stock Below market with 10x upside potential

Hollister Biosciences HSTRF stock is a stock that could easily be in my Top Picks of Best Marijuana Stocks to Buy Now. This is a stock that could easily be much higher in price. But, this is just the beginning. I got a question posed to me in the newly launched forum regarding the fact that Hollister Biosciences is in the process of insourcing all of its production. By doing this, Hollister Biosciences has the potential to increase its gross margins since they will not be producing its own products. This will be far more cost-effective and profitable.

Already, Hollister Biosciences holds the distinction of being the most efficient of all of the cannabis stocks I monitor from an operating cost perspective with 8.1%. The very best companies usually print at roughly 30% – 35%. Being in the single digits is beyond remarkable with this metric and, Hollister Biosciences has been in this neighborhood for several quarters.

A subscriber to this sight, William, asked if there would be any changes to this specific metric should Hollister Biosciences start insourcing production. The short answer to that is no. Production fo product usually falls in the gross revenue & profits section of the revenue statement, so therefore, operating costs would not necessarily decline.

Best in Class

Even still, there is room for Hollister to increase operating costs. Operating costs entail SG&A, Sales, General, & Administrative. So, not only is it the corporate side of the business but, the people who drive sales. Should Hollister Biosciences dedicate increases in operating costs to increases in sales, one could imagine that revenues would significantly increase.

For now, Hollister is expanding in new areas such as Arizona.  They have several collaboration deals with high-profile individuals such as Tommy Chong… who may know a thing or two about cannabis.  These deals are increasing Hollister’s footprint and revenues are showing these are products that are going to continually increase revenues.

Hollister Biosciences HSTRF Stock Comparison

Here are the numbers for comparing the cannabis companies on my Complete List of Top 100 Cannabis companies:

  • #49 Market Cap: $49M
  • #87 Revenue Growth Rate: -23.8%
  • #60 Gross Margins: 24.4%
  • #1 Operating Efficiencies: 8.1%
  • #16 EBITDA/Revenue: %
  • #15 Cash/Debt Ratio: 76.1%
  • #55 Total Assets $15.5M

Hollister Biosciences stands out  in a few metrics. First, this is a smallish cannabis company. They do not have much in the way of assets but, they still hold their own in other metrics, most notably with operating efficiencies.

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Hollister Biosciences HSTRF Stock Forum
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Hollister Biosciences HSTRF Stock Financial Data

Here is a breakdown of the latest financial data reported over the summer for Hollister Biosciences.

Revenue

As for this quarter’s revenue, it took a hit but, what I am not certain of is if Q1 was outsized and this is more of a natural progression for revenue:

Hollister Biosciences Revenue
Revenue: To see complete Hollister Biosciences financial data visit HSTRF Stock page

The average revenue growth for the past quarter was 7.5% of all of the 99 stocks I monitor. Keep in mind, of these 99 publicly traded stocks, about 33 of them are EBTIDA profitable and only about 10 are net earnings profitable. So, for a 7.5% revenue growth rate this is being driven by the very largest cannabis companies overall.

If Hollister Biosciences were to hit 7.5% QoQ growth rate over the next four quarters, given the average of the past two quarters of $20M, Hollister would be printing close to $27.5M for the quarter in just four more quarters. Given the metrics they are already sitting on, Hollister would be very profitable over the next four quarters.

Gross Margins

For now, there is room for upside growth in gross margins:

Hollister Biosciences Gross Margins
Gross Margins: To see complete Hollister Biosciences financial data visit HSTRF Stock page

If there is any insourcing that would happen with Hollister, this means all of the revenue would be pushed through Hollister’s grow & production processes. There would be cost savings since basically, Hollister’s facilities are underutilized, but, Hollister has to pay the bills for these facilities. This could be aa significant upside potential for the stock since Hollister is already net earnings profitable.

If Hollister were to hit the $27.5M in revenue in just four quarters, and gross airings were to increase upwards to about 50% from the 25% it is sitting at now, that would be $13.5M in gross profits. This is up from the mere $4.5M Hollister has in gross profits for this quarter.

Operating Efficiencies

As I mentioned, operating are the best in the industry:

Hollister Biosciences Operating Efficiencies
Operating Efficiencies: To see complete Hollister Biosciences financial data visit HSTRF Stock page

What is most notable is that Hollister is also consistent with this metric; this quarter’s 8% was not a one-off.

And, what if there are increases in the sales force getting more and more product into more and more shelves in dispensaries? This could really drive revenue growth overall.

EBITDA Profits

Despite having such low gross margins, Hollister has already achieved EBITDA profitability:

Hollister Biosciences EBTIDA
EBITDA: To see complete Hollister Biosciences financial data visit HSTRF Stock page

The past two quarters have seen EBITDA positive numbers and, I am looking forward to increases in gross margins from insourcing product that will drive this even higher.

Net Earnings

Similarly to EBITDA profitability, Hollister Biosciences is net earnings positive:

Hollister Biosciences Net Earnings
Net Earnings: To see complete Hollister Biosciences financial data visit HSTRF Stock page

This is astounding to me because yet, again, there is a company that is net earnings positive yet there is not a reciprocal stock price valuation.

If Hollister Biosciences were to hit the $27.5M in four quarters, this would likely bring in approximately 25% net earnings of revenue given 45% cost of goods, 20% of operating costs, and 10% of continuing costs. That is approximately $7.5M in profits.

Given the 265M shares outstanding, this would be a approximately $0.0275 EPS for the four quarters. With a 100x future earnings multiple, this puts Hollister at approximately $2.75 per share.

But, my numbers were off. First, likely Hollister could eventually hit approximately 60% – 65% in gross margins. Also, I pushed operating costs up to 20%, which is double the current rate. Then, I used a 10% for continuing costs, but Hollister has very low debt and so will not be spending too much in this area. The $2.75 stock price may be low in an environment where cannabis stocks are valued at a level commensurate of the broader market.

Cash On Hand

Given the assets and debt, Hollister has a decent amount of cash on hand:

Hollister Biosciences Cash on Hand
Cash on Hand: To see complete Hollister Biosciences financial data visit HSTRF Stock page

For a company this size, cash on hand is sufficient.  Hollister ranks well in this regards.  And, they are net earnings positive so their cash on hand will continually increase should they not take on substantially more assets through growth.

But, Hollister is demonstrating that this is a company that will easily grow within a certain means instead of overextending themselves.

Cash Debt Ratio

Hollister Biosciences only has approximately $9M in debt, so their cash position is strong enough for the debt size:

Hollister Biosciences Cash Debt Ratio
Cash Debt Ratio

But, remember that Hollister Biosciences is net earnings profitable and therefore will be bringing in more cash that will continually improve their position.  And, with the free cash flow, Hollister Biosciences can begin to expand into the areas they already have sales and grow into these areas, improving gross margins along the way.

This is a very powerful position to be in for a company and not many of the cannabis companies I follow are in such a position.  This is a reflection of integrity of management and the quality of the products.

Total Equity

Hollister Biosciences is a smallish company by size with a mere  $50M Market Cap & $15.2M in total assets:

Hollister Biosciences Total Equity
Total Equity: To see complete Hollister Biosciences financial data visit HSTRF Stock page

Big things, indeed, come in small packages.  Don’t be dissuaded by the size of the market capitalization nor the total assets.  The other metrics far outweigh this.  The net earnings and future earnings potential alone will continually increase and push this company forward.  The eventuality is that, on a standalone basis, Hollister will continually build up total equity and they will do so with minimal amounts of debt while bringing in cash.  They will not need to issue new stock as they stand right now.

Hollister Biosciences HSTRF Stock Chart

As with nearly every cannabis stock out there, Hollister Biosciences is seeing its stock dip:

Biosciences HSTRF Stock: Cannabis Stock To Watch
Biosciences HSTRF Stock: Cannabis Stock To Watch

For those out there that are learning what value investing is, this should be a signal that this is a major opportunity for longterm growth.  If other investors are not savvy enough, so be it.  You are.  And, in this game, it is all about YOU… and winning.

Is Hollister Biosciences HSTRF Stock a Good Investment?

Hollister Biosciences really does deserve a spot in my Best Marijuana Stocks to Buy Now; my Top Picks.  I know that.  In fact, we are just on the cusp of earnings releases and, given where this company sits, I am missing an opportunity here if I do not pick this stock to put in there – along with VEXT Sciences VEXTF Stock.

The metrics on this stock speak for themselves.  Hollister will continually expand into the future and revenue growth rates are going to increase over the next few quarters.  I want to see just one more revenue report just to know where last quarter’s revenue and the most recent print factor in.  If Hollister were to blow out their recent highs, if they were to increase above the latest numbers, all while maintaining industry-best numbers, there is absolutely no reason to not pick this stock for my Top Picks.

What are my favorite cannabis stocks?

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