Village Farms, VFF stock, is set to move higher especially with cannabis federal legalization. VFF stock is a Nasdaq-traded stock and therefore has far more exposure than other OTC stocks. Village Farms has significant upside potential given its current profitability and future revenue growth. The VFF Stock forecast is for an upside move of triple-digit percentage moves. For now, gross margins represent the big upside potential as margins are only coming in at about 25%. At the same time, operating costs are very low comparatively and contributing to profitability for Village Farms. With economies of scale, and increasing revenues, Village Farms will see significant increases in its gross margins which, this will trickle downward to even more EBITDA profitability & net earnings.
Also, there is considerable scale being built into more production possibilities. Village Farms is entering Netherlands as well they have acquired a Boulder, Colorado CBD company that is already profitable. And, more scale is being acquired and built for future growth.
Something to note: Village Farms had many logistical issues with COVID and the legacy vegetable business. This disrupted profitability significantly over the past quarter. For now, this appears to be behind them. But, prevailing geo-political events may still hamper some aspects of all businesses. This continues as it was mentioned several quarters in a row. Also, why not sell the vegetable business? If the increases we are seeing in revenue are coming from cannabis, and incremental gains in margins are improving these aspects of the bottom line, yet the vegetable legacy business is dragging down performance, why not dump it?
For now, VFF stock appears to be under-appreciated by the market. Should management continue with the execution of its plan, VFF stock will move upward.
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Village Farms Financial Statements
Village Farms Financials via the latest Village Farms Financial statements.
Village Farms Gross Profits
I think this is the biggest thing to be gained with Village Farms: improved gross margins. Let’s face it; there is not much in the way of big gross margins with regard to vegetables. Management saw the light and it was green. Now, with scale, gross margins are going to continually increase. Given increased revenue, economies of scale can be achieved and this will drive gross margins higher. That will, in turn, trickle downward to profitability.
Also, there is more scale with continued increases in production possibilities as well as more acquisitions on the way. This will push revenue growth further.
Village Farms Operating Profits
I’m a big stickler for finding companies that are good at keeping costs down. We certainly have seen our share of companies that were given large amounts of capital to invest in cannabis only to see that capital get burned lower and lower with no real results… except lower cash levels. That being said, Village Farms was running a vegetable farm where there really was not too much in the way of margins. Given that, the culture for Village Farms management is that they run low operating costs relative to revenue.
Operating costs are some of the best in the industry relative to revenue and this is the big contributor to both EBTIDA and net earnings profitability. And, with future revenue growth, economies of scale, the next big contributor to profits will be gross margins which, this is where the drive for VFF stock is going to come from.
Village Farms EBITDA & Net Profits
Two solid quarters of EBITDA profitability and net earnings is the start. From here, future growth with this company is going to be key and will continually drive profits. I believe that the market has this stock wrong with regard to its future. There will be profits and these profits are going to grow steadily. Given VFF stock’s current level, this represents an excellent stock to get into for a long term holding.
Village Farms Cash On Hand
Being profitable means there is not any real concern with cash on hand. I believe that Village Farms is likely to continue forward with profitability now that the aforementioned logistical issues have been worked through. With continued profitability, Village Farms can build up its cash reserves and utilize debt to build future assets to grow future revenue growth.
Village Farms Total Equity
Growing total equity means there is a foundation for growing revenue. The assets that Village Farms is putting together will contribute to revenue & future growth. And, liabilities are contained with low growth. At the same time, CapEx expenditures will ensure that Village Farms continues to add to its future revenue growth potential.
For now, Village Farms is sitting in a sound financial position and can continually utilize its equity to expand into new markets and capitalize on the wave of green sweeping the world. Look for the Netherlands to be a factor. And, look for Germany to be something in the future.
Village Farms VFF Stock Forecast
Village Farms Discounted Cash Flow Calculation
| Assumptions | |
|---|---|
| Tax Rate | 25% |
| Discount Rate | 8.000% |
| Perpetural Growth Rate | 12.5% |
| EV/EBITDA Mulltiple | 25.0x |
| Transaction Date | September 1, 2022 |
| Fiscal Year End | 12/31/22 |
| Current Price | $1.810 |
| Shares Outstanding | 88,571,901 |
| Debt | $152,100,000 |
| Cash | $18,200,000 |
| Date | September 1, 2022 | Dec 31, 2023 | Dec 31, 2024 | Dec 31, 2025 | Dec 31, 2026 | Dec 31, 2027 | Dec 31, 2027 | |
|---|---|---|---|---|---|---|---|---|
| Time Periods | 1 | 2 | 3 | 4 | 5 | |||
| Year Fraction | 1.33 | 1.00 | 1.00 | 1.00 | 1.00 | |||
| EBIT | $41,875,000 | $65,625,000 | $90,000,000 | $118,125,000 | $150,000,000 | |||
| Less: Cash Taxes | $10,468,750 | $16,406,250 | $22,500,000 | $29,531,250 | $37,500,000 | |||
| Plus: D&A | $11,725,000 | $13,125,000 | $15,750,000 | $18,375,000 | $21,000,000 | |||
| Less: Capex | $67,000,000 | $75,000,000 | $90,000,000 | $105,000,000 | $120,000,000 | |||
| Less: Changes in NWC | -$50,250,000 | -$56,250,000 | -$67,500,000 | -$78,750,000 | -$90,000,000 | |||
| Unlevered FCF | 1 | $26,381,250 | $43,593,750 | $60,750,000 | $80,718,750 | $103,500,000 | ||
| (Entry)/Exit | -$294,215,141 | $843,750,000 | ||||||
| Transaction CF | - 0 | $35,175,000 | $43,593,750 | $60,750,000 | $80,718,750 | $103,500,000 | $843,750,000 | |
| Transaction CF | -$294,215,140 | $35,175,000 | $43,593,750 | $60,750,000 | $80,718,750 | $103,500,000 | $843,750,000 |
| Market Value | |
|---|---|
| Market Cap | $160,315,141 |
| Plus: Debt | $152,100,000 |
| Less: Cash | $18,200,000 |
| Enterprise Value | $294,215,141 |
| Equity Value/Share | $1.8100 |
| Rate of Return | |
|---|---|
| Target Price Upside | 316% |
| Internal Rate of Return (IRR) | 34% |
| Market Value vs Intrinsic Value | |
| Market Value | $1.81 |
| Upside | $5.73 |
| Intrinsic Value | $7.535 |
I used what I would describe as gentle valuation metrics here. I could easily have pushed some of these numbers harder. But, the read I got from various other analysts regarding future revenue growth was lower than what I felt Village Farms will actually produce; there is nothing wrong with being wrong with that. I think Village Farms will outperform the revenue growth rate. Also, it is very possible that Village Farms acquires more accretive businesses and that is not factored into this.
I will continually update these figures as we progress through the year.
Is Village Farms VFF Stock A Good Investment?
I fully believe that all cannabis stocks are undervalued across the board. I can think of none that are valued appropriately at this time. Village Farms is one of those stocks that is set to move higher along with the entire industry. And, one of the things that I continually point out is that the Nasdaq-listed stocks have the potential to really move once we see federal legalization simply because of the access that most investors have over to Nasdaq versus the OTC-listed stocks.
Village Farms is already profitable and, when you compare the valuation of VFF Stock to the valuation in the broader market, you can see that the comparisons mean VFF stock should go up.
There is one lingering caveat to this, however: Economic change. While I see a great deal of upside in cannabis stocks I also see inflation being a concern and that there will be shifts with the economy and the broader market. Still, VFF stock will go upward.
@cannabisinvesting69yahoo-com
Dang… $190.00? That seems to be a bit of a stretch but, this target could happen in a couple of years’ time. I think these guys are going to build up a nice foundation. Still, that is a big target.
It looks as if VFF Stock is just about to take off. I see that they are about to release financial data again (And so is Sundial Growers as well.
7/27/23 I don’t track VFF but I know you track the VIX and VIX derivatives UVXY and UVIX. Since my last update on the VIX it has continued to post lower target lows so I have been holding off on continuing to build a long position in UVIX and/or UVXY. The “final” target low for VIX has been 12.73 for quite awhile now. Today it missed by .01!! Then it ran prematurely. Expect the VIX to come back to take out 12.73. UVIX is already well below my long term buy n hold target of 4.20 (interstingly enuff..420). Here’s the 10 day 15 minute chart on the VIX showing today’s miss by .01. I would suggest you hedge any long positions you own with either UVIX or UVXY shares once the VIX trades sub 12.73. The wave of selling coming in the SPY/SPX is going to be fast n furious…and epic. https://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&insttype=&symb=vix&x=19&y=7&time=18&startdate=1%2F4%2F1999&enddate=8%2F6%2F2022&freq=7&compidx=aaaaa%3A0&comptemptext=&comp=none&ma=0&maval=9&uf=0&lf=1024&lf2=2&lf3=0&type=2&style=320&size=4&timeFrameToggle=false&compareToToggle=false&indicatorsToggle=false&chartStyleToggle=false&state=11
Let’s see what happens tomorrow with the PCE Core Index and how that would drive stocks. I have been in-and-out of UVXY here and there. Mostly, I’ve made a few pennies. But, nothing huge. I think we will continue to see a lull in volatility until we start getting more and more news out of inflation that states it is not going to hit the 2% level magically. I believe the robust economy is going to robustly push inflation a little higher. Then, the Fed will get busy again.
I watch the goldbug index (HUI) as a measure of inflation. Not so much physical gold or silver anymore since those can be swung via rampant speculation. The fact that retail buyers of physical gold and silver are willing to pay such a rediculous premium over spot when the PM stocks can’t even get to 2021 highs (when inflation was at its peak as “the ave Joe” had plenty of stimmie money to waste buying crap on Amazon) tells me the inflation theorists have it way wrong. I expect physical gold prices to collapse sub $1000/oz in the long term. Yes, I realize I am the only person on the planet who thinks that. Oil has been “the” inflation indicator for probably a decade now. And oil derivative USO only needs to see 72.32 as its “final” high. And its getting close. So that falls in line with a coming market crash also, besides the VIX target low at 12.73. https://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&insttype=&symb=uso&x=28&y=16&time=11&startdate=1%2F4%2F1999&enddate=8%2F6%2F2022&freq=1&compidx=aaaaa%3A0&comptemptext=&comp=none&ma=0&maval=9&uf=0&lf=1024&lf2=2&lf3=0&type=2&style=320&size=4&timeFrameToggle=false&compareToToggle=false&indicatorsToggle=false&chartStyleToggle=false&state=11