Valens Q3 Earnings: Oil Extraction Not Immune from Pot Industry Woes

No Cannabis Sub-sector is Immune from the Woes of the Canadian Pot Industry

The Valens Company (TSX:VLNS) announced Q3 2020 results that beat lowered analyst expectations on the EBITDA line, with revenue coming in-line.

In May of this year analysts had forecast revenue to be $43 million for Q3, however in the following two months they slashed revenue estimates down to $18 million.  They also slashed EBITDA estimates by 93% over that same two month period.

Needless to say these analyst beasts are trivial given the massive downgrades in estimates.  Revenue growth year-over-year stood at +10%, while EBITDA shrunk by -85% over the same period.

Act. Q3 Est. Q3 % Beat/ Miss
Revenue $18.12M $18.16M in-line
% growth y/y 10%
EBITDA $1.44M $0.47M +206%
% growth y/y -85%

 

With the Oil Extraction Bubble Deflated, Where to Now?

The price-to-sales ratio of the two main oil extraction stocks, Valens and MediPharm Labs (TSX:LABS), have significantly de-rated since the start of 2020. MediPharm’s multiple has fallen by 73% and Valens has fallen by 50%.

There was a time when “clever” hedge fund types boasted on twitter about the superiority of oil extraction vs. growing cannabis – needless to say they’ve been very quiet for while.

These stocks are now in the dreaded no mans land of valuation; they don’t have any growth and profitability is awful – what multiple should an investor pay for that?  You got it, not a lot.

We simply don’t see a clean pathway for share price appreciation until profitability turns.

 

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The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

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