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With the business potentially at an important milestone, we thought we'd take a closer look at HEXO Corp.'s (TSE:HEXO) future prospects. HEXO Corp., through its subsidiaries, produces, markets, and sells cannabis in Canada. On 31 July 2020, the CA$392m market-cap company posted a loss of CA$546m for its most recent financial year. The most pressing concern for investors is HEXO's path to profitability – when will it breakeven? In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.
HEXO is bordering on breakeven, according to the 12 Canadian Pharmaceuticals analysts. They anticipate the company to incur a final loss in 2022, before generating positive profits of CA$13m in 2023. So, the company is predicted to breakeven approximately 3 years from now. How fast will the company have to grow each year in order to reach the breakeven point by 2023? Working backwards from analyst estimates, it turns out that they expect the company to grow 153% year-on-year, on average, which is rather optimistic! Should the business grow at a slower rate, it will become profitable at a later date than expected.
We're not going to go through company-specific developments for HEXO given that this is a high-level summary, though, keep in mind that typically pharmaceuticals, depending on the stage of product development, have irregular periods of cash flow. This means that a high growth rate is not unusual, especially if the company is currently in an investment period.
Before we wrap up, there’s one aspect worth mentioning. The company has managed its capital prudently, with debt making up 11% of equity. This means that it has predominantly funded its operations from equity capital, and its low debt obligation reduces the risk around investing in the loss-making company.
This article is not intended to be a comprehensive analysis on HEXO, so if you are interested in understanding the company at a deeper level, take a look at HEXO's company page on Simply Wall St. We've also compiled a list of pertinent aspects you should look at:
Valuation: What is HEXO worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether HEXO is currently mispriced by the market.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on HEXO’s board and the CEO’s background.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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