As the world attempts to recover from the novel coronavirus crisis, cannabis companies like Hexo (NYSE:HEXO) must convince their stakeholders that they’re in a solid fiscal position. In this specific case, it’s tough to bring investors on board as HEXO stock has struggled in 2020.
If you check the financial message boards and chat rooms, you might see that folks are buzzing about a recent event that’s of significance to HEXO stock holders.
Actually, there’s more than one recent event that’s worth discussing. Yet, we might get distracted by one bit of news and ignore the other one. In other words, we might end up burying the real headline when it comes to HEXO stock.
So, let’s dive in and examine the price action of HEXO stock throughout 2020. Just bear in mind that the following technical analysis reflects HEXO’s prices before the big event that people are busy talking about.
A Closer Look at HEXO Stock
During the early weeks of 2020, HEXO stock struggled to maintain the $1.50 level. Even prior to the onset of the coronavirus crisis, it seemed that the HEXO bulls were losing control of the price action.
Consequently, the Covid-19 crisis only accelerated a decline in HEXO stock that had already been in progress. In March, the share price bottomed out at around 35 cents.
Throughout the remainder of the year, the HEXO stock bulls sought to capture and hold the psychologically significant $1 level. This battle continued even in December, with HEXO barely staying above $1 on Dec. 22.
Then came Dec. 11 and news that would require HEXO stock holders to change how they view the share price. Details? Here we go.
A Major Consolidation
The informal term for it would be a reverse split, but the fancy name is “share consolidation.”
On Dec. 11, Hexo officially filed the articles of amendment to implement a reverse stock share split. HEXO would still trade on the New York Stock Exchange, but they would be consolidated “on the basis of four (4) old Shares for one (1) new Share.”
To put it concisely, there’s a four-for-one reverse share split in effect for HEXO stock. And lo and behold, HEXO shares appeared to be worth more than $4 on heading into the long Christmas weekend. On the face of it, this might not seem to have any negative impact on the shareholders.
Yet, some commentators might suggest that the reverse split is a sign of trouble. As InvestorPlace contributor William White points out, “the New York Stock Exchange doesn’t allow shares that trade below an average of $1 for a 30-day period.”
Therefore, Hexo’s reverse share split might seem like an act of desperation for HEXO stock to maintain its membership in Club NYSE. By extension, some pundits might even conclude that the company must be having real problems.
It’s not necessarily a great sign when a company executes a reverse stock split. So, the concerns are understandable.
However, we don’t need to jump to the conclusion that Hexo is a company that’s in real trouble. Indeed, the firm’s results for the first fiscal quarter of 2021 indicate that Hexo is on solid financial footing despite the global pandemic.
For the indicated quarter, Hexo posted gross revenues of 41.3 million CAD ($32.08 million). That’s the highest quarterly gross in Hexo’s history. It’s also a 14% quarter-to-quarter increase as well as a whopping 114% improvement compared to the year-ago quarter.
On top of that, Hexo reported net revenues of 29.5 million CAD for the indicated quarter. That’s up 9% on a quarter-over-quarter basis, and an increase of 103% on a year-over-year basis.
With those stats in mind, Hexo CEO and co-founder Sebastien St-Louis seized the opportunity to engage in a bit of humble bragging:
“I would like to thank the entire HEXO team for the remarkable progress made in the first quarter… Today’s record revenue performance reflects our commitment to providing consumers with high-quality products, at reasonable prices, for all occasions.”
Let the Doubters Doubt
The doubters might consider the reverse share split in HEXO stock as a sign of problems or even of desperation.
Yet, let’s not focus so much on the stock that we end up forgetting the company and its solid fiscal position. And when we concentrate on Hexo’s recent financial progress, it’s much easier to accentuate the positive.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
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