$500 in Hexo (TSX:HEXO) Stock at the Start of 2020 Is Worth This Much Now!

If you’d invested $500 in Hexo Corp. (TSX:HEXO)(NYSE:HEXO) stock at the start of this year, it would be worth under $250 today. 

| More on:
edit Cannabis leaves of a plant on a dark background

Image source: Getty Images

Hexo (TSX:HEXO)(NYSE:HEXO) stock dropped 11% yesterday. In fact, the stock has been steadily declining for much of this year. If you’d invested $500 in Hexo stock at the start of 2020, it would be worth just under $250 today! Half of the company’s market value has evaporated in just six months. 

However, investors should consider what the stock could hold for the future. In other words, what would $500 invested in Hexo stock today be worth by 2021? Here’s a closer look. 

Future potential

The size and promise of the legal cannabis sector hasn’t changed much over the past few years. This is still an exciting new sector of the economy that could be worth hundreds of billions of dollars by the end of the decade. One estimate suggests the medical and recreational cannabis sector would generate US$73.6 billion (CA$100 billion) by 2027.

That means there’s plenty of room for expansion. Hexo stock is already a leader in the sector. However, now its market value is far more realistic and attractive. Long-term investors who appreciate the growth potential should dig deeper into Hexo’s fundamentals.

Hexo stock’s valuation

The pendulum of investor sentiment seems to have swung from exuberance to pessimism. In early 2019, Hexo stock was worth $10.5. Now, it’s a fraction of that price. Structural issues in the marijuana sector and a looming debt problem has compressed the valuation of all cannabis stocks. 

That means investors are overlooking Hexo stock’s underlying strengths. The company’s financials seem to be improving. In its most recent quarter, the company declared top-line figures that were higher than estimates. It’s on track to generate $80-$100 million in revenue this year. 

Meanwhile, Hexo’s market value is currently $433 million. That implies a price-to-sales ratio of four. Assuming Hexo can achieve a 12.5% profit margin in the future, the forward price-to-earnings for Hexo stock could be just 35. That’s not bad for a company that’s expanding sales at a 30% sequential rate. 

When you consider the size of the market, the company’s established partnerships, and its track record of tangible growth, Hexo stock seems fairly valued. However, investors must be aware of the risks involved in any cannabis stock. The supply, over-production, and debt issues could take a few years to resolve. Value will be unlocked gradually. 

Bottom line

The legal cannabis sector has had a rough few years. Structural issues and a massive debt burden have deflated investors’ excitement for this industry. Hexo stock has been a prime victim of this shift in sentiment. 

If you’d invested $500 in the stock at the start of this year, it would be worth under $250 today. Investors have lost hundreds of millions of dollars over the past six months. The destruction in wealth has been even deeper over the past year. Hexo stock is now worth just 10% of its early 2019 price. 

However, considering the steady expansion of HEXO’s top line and its current valuation, the stock seems attractively priced. Investors seeking growth at a reasonable price should certainly add Hexo stock to their watch list. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned. The Motley Fool recommends HEXO. and HEXO.

More on Cannabis Stocks

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

Why Canopy Growth Stock Could Double in 2024

Canopy Growth (TSX:WEED) stock saw its share more than double in the last two weeks. So, can it do it…

Read more »

Coworkers standing near a wall
Cannabis Stocks

Why Is Everyone Talking About Canopy Growth Stock?

Canopy Growth stock (TSX:WEED) saw shares surge in the last two weeks for a variety of reasons investors can dig…

Read more »

Pot stocks are a riskier investment
Stocks for Beginners

Why Shares of Cannabis Stocks Are Rising This Week

Cannabis stocks received a boost this week as the White House urged the drug enforcement administration to reschedule the drug.

Read more »

A person holds a small glass jar of marijuana.
Stocks for Beginners

Why Canopy Growth Stock Jumped 16% on Wednesday

Canopy Growth stock (TSX:WEED) is up 16% on Wednesday, adding to a surge of 60% growth in the last week…

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Is the Worst Over for Canopy Growth Stock?

Down 99% from all-time highs Canopy Growth stock has burnt investor wealth and remains a high-risk investment.

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Steer Clear: This Stock Spells Trouble

A newly listed cannabis stock is outperforming in 2024 but investors should stay clear to avoid trouble and losses.

Read more »

Cannabis stocks have fallen.
Cannabis Stocks

2 Best Marijuana Stocks to Buy This Month

Marijuana stocks in the U.S. such as Green Thumb and Curaleaf can help you deliver outsized gains to investors in…

Read more »