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When Will HEXO Corp. (TSE:HEXO) Breakeven?

Walter Gay

HEXO Corp.’s (TSE:HEXO): HEXO Corp., through its subsidiary, HEXO Operations Inc., produces, markets, and sells cannabis in Canada. The company’s loss has recently broadened since it announced a -CA$23.3m loss in the full financial year, compared to the latest trailing-twelve-month loss of -CA$34.2m, moving it further away from breakeven. Many investors are wondering the rate at which HEXO will turn a profit, with the big question being “when will the company breakeven?” In this article, I will touch on the expectations for HEXO’s growth and when analysts expect the company to become profitable.

See our latest analysis for HEXO

HEXO is bordering on breakeven, according to the 7 Pharmaceuticals analysts. They expect the company to post a final loss in 2019, before turning a profit of CA$48m in 2020. So, HEXO is predicted to breakeven approximately 2 years from now. What rate will HEXO have to grow year-on-year in order to breakeven on this date? Using a line of best fit, I calculated an average annual growth rate of 52%, which is extremely buoyant. If this rate turns out to be too aggressive, HEXO may become profitable much later than analysts predict.

TSX:HEXO Past Future Earnings December 18th 18

Underlying developments driving HEXO’s growth isn’t the focus of this broad overview, but, 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 I wrap up, there’s one aspect worth mentioning. HEXO currently has no debt on its balance sheet, which is quite unusual for a cash-burning pharma, which typically has high debt relative to its equity. This means that HEXO has been operating purely on its equity investment and has no debt burden. This aspect reduces the risk around investing in the loss-making company.

Next Steps:

There are key fundamentals of HEXO which are not covered in this article, but I must stress again that this is merely a basic overview. For a more comprehensive look at HEXO, take a look at HEXO’s company page on Simply Wall St. I’ve also put together a list of essential aspects you should further examine:

  1. 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.
  2. 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 back ground.
  3. 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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.