Neptune Wellness Solutions (TSX: NEPT)(NASDAQ:NEPT) reported fourth-quarter earnings and fiscal year 2020 results on Wednesday, June 10. Current and interested shareholders in this pot stock should not miss these three numbers: revenue, net income, and adjusted EBITDA.
First, revenue is the average price multiplied by the quantity of a good sold. This figure tells the story about sales increases, holding prices constant. For firms in expanding industries like Neptune Wellness, sales growth is a top indicator of market share capture.
Second, net income is the sales revenue minus the cost of goods sold, depreciation, interest, taxes, and other expenses. This number is a great way for investors to assess the profitability of an organization. Investors should not overlook current profitability, even when they are looking at companies that have hands in burgeoning enterprises like cannabis.
Third, adjusted EBITDA is earnings before interest, taxes, depreciation, and amortization, adjusted for one-time accounting items. Financial analysts remove singular components that may mislead the EBITDA number. Cannabis investors should use the adjusted EBITDA reported by Neptune Wellness to compare the firm to competitors.
Neptune Wellness revenue increased by 4%
Sales revenue totalled $9.53 million for the quarter ended March 31, 2020. From the previous quarter ending December 31, 2019, revenue increased by $355 thousand, or 4%. Compared with the same quarter last year, revenue increased by 68%, or by $3.866 million.
Growing revenue indicates that the company is having success in its endeavour to build its businesses through sales.
In particular, the cannabis segment is making large contributions to the growth in revenue at Neptune Wellness. Cannabis revenues increased by $1.195 million to $4 million, or 43% from the prior quarter.
Headlines about the booming cannabis industry in Canada may have taken a backseat to news about the COVID-19 pandemic, but this newly legal health sector is still driving economic activity.
Net income decreased by $26.855 million
Neptune Wellness reported a net loss of $39.239 million for the fourth quarter of 2020, ending on March 31. Compared with the same quarter last year, losses grew by $26.855 million.
Notably, Neptune Wellness acquired SugarLeaf Labs in July 2019. Since the close of the acquisition, both parties agreed to a $36.782 million reduction in the fair value of the entity. This means that Neptune Wellness is no longer obligated to pay that amount to the prior owners of SugarLeaf labs, resulting in preserved income.
Adjusted EBITDA decreased by $22.647 million
Relative to the same quarter last year, Neptune Wellness reported a $22.647 million decrease in adjusted EBITDA for the fourth quarter ending March 31. In other words, Neptune Wellness lost $25.354 million in the last quarter of the fiscal year 2020.
It isn’t uncommon for companies involved in high-growth businesses to report soaring revenue and falling earnings. Neptune Wellness attributes the decrease in adjusted EBITDA to productivity-enhancing investments in its cannabis business.
The firm is growing its workforce to keep pace with the increase in sales volumes. Expanding capacity, building competitive marijuana brands, and attracting corporate-level talent costs money.
Thus, the work Neptune Wellness is doing to remain a top player in the pot industry easily explains the counter-intuitive increase in sales revenue coupled with falling earnings.
Should you buy Neptune Wellness stock?
No investment is risk-free. Trading for around $4 per share this week, Canadian investors can buy 100 shares of Neptune Wellness stock for $400. That’s a pretty good deal for a retirement portfolio, RRSP, or TFSA.
Your maximum loss is $400. Meanwhile, your maximum gain is limitless. I’d say that is a pretty good gamble. Ultimately, the decision is up to you.
