iAnthus ITHUF stock may be the most despised cannabis stock there is. Investors feel as if they were burnt rather badly previously. Still, I wanted to get the ITHUF stock forecast & analysis up onto the website. Fact is, over a period of time, iAnthus has built up some decent revenues. However, the past three quarters has seen revenues decline significantly. But, and more importantly, total equity has fallen into negative territory calling in to question iAnthus’s future ability to move forward. Without increasing revenue, scaling up to profitability will be difficult. Then, cash burn will push iAnthus to raise more capital. This will mean future equity declines without in-kind increases in profitability. iAnthus will be sitting on teetering future.
Notwithstanding the previous deal the put such a bad taste in investors mouths, the prospects for future increases in ITHUF stock look limited also. In the ITHUF stock forecast using the DCF below, I used a more progressive increase in revenue increases but, I kept margins at a lower rate. The fact is, I do not necessarily believe that iAnthus will be able to hit its revenue targets that I have for this stock. This is a limitation that will act negatively on sentiment for ITHUF.
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iAnthus Financial Data
Here is the ITHUF financial data for the latest period as well the analysis of the financial data.
iAnthus Gross Profits
As it turns out, one of the bright spots for iAnthus is the gross margins which are not too far off of some of the better levels of most other companies. And, the fact that revenues have been declining over the past few quarters while simultaneously gross margins have remained competitive and even increasing slightly tell me that this is a culture that can carry forward should revenues resume their upward moves.
But, with a pending recession that is very likely to affect a demographic that is more broadly a consumer of cannabis products tells me that there is not much realistic hope for upward revenue increases. Still, the continued maintaining of gross margins is a major plus.
iAnthus Operating Profits
On the one hand, in order to make an omelette you need to crack some eggs. Operating costs are too high relative to where they need to be. At 75% of revenue, this is double where the better companies are. But, it is also mathematics and, if the same level of operating costs were maintained, while revenue increased, this metric would improve. Still, revenue would need to double. That seems like too much of a long shot.
iAnthus EBITDA & Net Profits
In order to get to EBITDA levels that are more sustainable for the long term future of iAnthus, gross margins would do well in an increasing revenue environment. And, maybe iAnthus can squeeze out an additional 10% from gross margins with a solid increase in revenue. Then, should costs improve on a relative basis and operating margins improve overall, that gets iAnthus back to a level of EBITDA profitability that would make for a rosier picture.
But, there are other issues that only a massive surge in revenue will improve the outlook.
iAnthus Cash On Hand
Cash on hand along with net earnings as big as they are on a regular basis means the cash burn rate is going to eat all of the available cash too fast. This has a lot of negative future potential. The complete story, when you look at it from above, shows that this company has major challenges. The debt servicing, and the fact that iAnthus is likely to take on more debt, means this challenge will get bigger and bigger as time goes forward.
iAnthus Total Equity
Total equity entered into negative territory and, I see this as a long term issue. A company needs equity to drive revenue. If equity is in negative territory, and a company needs to raise more cash just to finance future operations, that money is not going to future growth but toward future payments to sustain ongoing operations. This digs a whole and it creates more debt.
For me, increasing total equity is just as important as increasing total revenue as well as improving margins. The negative total equity for me with iAnthus is a serious red flag to me.
iAnthus ITHUF Stock Forecast
Above, you can see the revenue projections that I used for iAnthus. And, as I mentioned further above, I think this is a stretch. In fact, I think this is going to be difficult for iAnthus to achieve. I also used fairly softer margins with the ITHUF stock forecast and analysis which, that will likely be what is seen in the future. However, if iAnthus were to scale up revenues and achieve scale that then need to, margins will likely improve significantly.
In the meantime, I feel as if the stock itself may move higher. But, this is not because of future fundamentals that have shifted into a gear where investors will line up as much as it is that cannabis federal legalization may pull investors in and cannabis stocks more broadly surge.
Is iAnthus ITHUF Stock A Good Investment?
There are a couple of issues with iAnthus.
- Revenue is no longer moving higher.
- Cash burn.
- Total equity in negative territory.
None of the above adds up to anything positive long term.
If I were a betting man, I could easily see reasons why ITHUF stock could get driven downward. For now, the $425M market capitalization seems unreasonable with the future of capital needs versus cash burn. Then, there is the shares outstanding which, that always gets me thinking that there is too much in the way of downside potential. I expect there to be more financing and, I expect that the cash burn will continue. This means dilution as well as more negative total equity.
If I were holding on to this stock, ITHUF stock, and there were a surge in cannabis stocks in general, I would get out and look for better opportunities elsewhere.