STEM Holdings STMH Stock Forecast & Analysis

STEM Holdings STMH stock is consolidating its operations and hyper-focusing its efforts in two areas where management believes it can achieve the greatest potential success: Oregon & California.  I wanted to put together the STMH Stock Forecast for those looking to learn how to invest in stocks.  By focusing efforts in just these two areas, all of STEM Holding’s energy can be driven to increase revenues, cut costs, and drive toward profits.  Cannabis stocks are setting up to move quickly upward with Cannabis Federal Legalization.  So, I wanted to look at STEM from that perspective as well.

I do want to point out that I did see a letter of intent (LOI) for acquiring a Colorado company with three dispensaries and two cultivation facilities by STEM Holdings.  So, STEM already has plans outside of its divested assets.

STEM Holdings Financial Data

Below is my analysis on STEM Holdings STMH stock from Stem Holdings latest Financial Statements.

STEM Holdings Gross Profits

Since STEM divested assets that were generating revenue, there would be an obvious decline in revenue.  But, since STEM has also singed a letter of intent to acquire an ongoing venture in Colorado with three dispensaries, this will also push revenues back upward once the deal closes.  Because of that, from a pro forma basis, we do not know what to expect with future revenues coming from the new acquisitions.

Nonetheless, by hyper-focusing in certain markets only, STEM Holdings will be able to potentially drive up revenues in these areas.  And, with scaling up operations, margins are likely to improve.  This could potentially drive STMH stock upward as it is already at a rock-bottom level.

STEM Holdings Operating Profits

Operating costs have moved lower after the asset divestitures.  Coinciding with the drop in revenue, the math has driven operating efficiencies much higher.  But, I do not necessarily think that with the upcoming acquisition, subsequent revenue increase and other costs that STEM Holdings will see its future operating efficiencies improving.  That will only come from organic growth with existing assets.

STEM printed $4.2M in revenue.  Simultaneously, STEM has operating costs of $4.5M.  They would need to drive revenues in existing markets up to ~$12.5M in order to get operating efficiencies in line with competitive markets.  This may take some time.  But, with California just having moved to adult-use, there is a lot of potential opportunity there with growth.  But, also the state of California really needs to do something about the ultra-tight environment they have created for legal cannabis producers & sellers while simultaneously trampling on the black market.

So, for STEM Holdings to accomplish this goal of driving revenues upward to $12.5M, there is a lot of work to do.  Simultaneously, STEM has to contain its operating costs that also incorporate Sales from SG&A in operating costs.  This often is non-linear.

STEM Holdings EBITDA & Net Profits

Negative EBITDA rates are never a good thing.  This is the math from low revenues but high costs.  EBITDA positive is the first big milestone for a company once they start producing and selling products.  Once a company can achieve these goals, the goal of paying for the core costs of the business.

After the core costs are paid, then it is the job of focusing on scaling up the business to pay for financing costs accrued by the business.  Looking toward positive net earnings is going to have to wait until STEM Holdings hits positive EBITDA.

STEM Holdings Cash On Hand

There is enough cash for STEM Holdings for working capital at this point. Cash to debt ratio is low, but not in a dire position.  There were costs associated with divestiture of the sold assets and those costs ate into the net earnings.  We will need to see what is going to happen next with revenues, costs, and profits in the next few quarters.

Also, there is ample assets to rely upon for financing operations.

STEM Holdings Total Equity

When you are looking to learn how to trade stocks, I always point out assets as an important indicator of the trajectory of a business.  When you look at STEM Holdings, the sale of assets dropped assets.  Naturally.  But, a business needs assets to potentially drive revenues higher and higher.  That is why you are always looking for continually increasing assets.  Understanding this will help you with learning how to trade stocks.  A lot of cannabis companies are still at a stage where consistency is not there yet.

At the same time, STEM Holdings still has plenty of equity to lean on should they need to raise working capital.  That will be important as STEM Holdings needs to raise more cash for future operations.

STEM Holdings STMH Stock Forecast

As I always do, I defer doing stock forecasts until a company achieves EBITDA profitability.  That is likely going to have to wait until STEM Holdings hits revenues between $10M – $15M on a quarterly basis coming from its current assets.  Once that happens I can get a better grasp of STEM Holdings and then do the STMH stock forecast.

Is STEM Holdings STMH Stock A Good Investment?

Cannabis federal legalization is likely to occur very soon.  This is going to push cannabis stocks upward.  STMH stock will follow suit from “guilt by association”.  On its own, outside of the future push of cannabis federal legalization, it will take me a moment to see what the future growth levels will be with STEM Holdings.  The California market is tough.  Growing revenue for a legal business in the current market may be difficult.

So, do I see STMH Stock going higher?  For now, and because of cannabis federal legalization, yes.  Do I think there is value in STMH stock?  I’m not so certain about that.  Because of that, I will stick to the stocks that are in a better position.

Company Financial Data

STEM Holdings STMH Stock Financial Data