Hexo Corp (NYSE:HEXO) stock has been riding high this past month soaring over 70%. On Monday the stock was up over 20% ahead of the Q3 earnings release on Thursday.
Hexo posted a loss of $298 million in Q2 due to writedowns
The company has performed fairly well in recent weeks after a terrible 2019. This is down to the bullish sentiment witnessed in the industry. There has been optimism that the coronavirus pandemic might not have a huge negative impact on the economy as early feared. Therefore for stocks such as HEXO that shed a lot of value last year, they turned to be attractive buys. If the economy doesn’t suffer greatly then it means that consumers will make discretionary buys.
Ahead of its earnings investors will be keen to see how this pot stock that has posted losses in the last 10 quarters will perform. It will be surprising if the company posts a profit considering it had a huge loss of $298 million in the last quarter. This was mainly due to massive write-downs that weighed on its bottom line. Still, profitability was out of the question even without the writedowns since its gross margin was negative.
Investors to look at sales growth and amount of loss in Q3 earnings
So in the third quarter investors should expect the company to incur a loss. But the question will be how big the loss is. Investors should be keen on impairments and if they reoccur to what extent. If there are writedowns the stock is likely to be sent crashing irrespective of the recent gains.
Similarly, investors would be keen on whether the company has grown its sales which is a metric that has not been obvious in the cannabis industry. Although the company’s value brand is likely to take revenue from the black market it might not be sufficient to offset the impact that the coronavirus pandemic has caused in recent months. Sign up below to say up to speed on HEXO and other fast moving stocks!