cbdMD Inc: Why This Tiny CBD Stock Could Double or Triple

cbdMD Inc: Why This Tiny CBD Stock Could Double or Triple

cbdMD Stock Is a Pot Stock That Pets Would Love

One commonality among governments around the world is their search for tax revenues. In the U.S., state governments are realizing the massive tax potential from the legal sale of marijuana.

Governments are beginning to register the millions of dollars of lost tax revenues from the sale of pot on the black market. Connecticut recently hopped on board as the 19th U.S. state to legalize recreational cannabis, and this trend is going to continue.

An area of the marijuana market I like is the cannabidiol (CBD) segment. CBD products are legal nationwide, as the compound has insignificant traces of tetrahydrocannabinol (THC)—the ingredient responsible for the “high” sensation from cannabis.

To play the CBD market, look at micro-cap cbdMD Inc (NYSEAMERICAN:YCBD), a company that has entered the rapidly growing CBD pet product market.

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YCBD stock traded as high as $6.83 on February 10 when “Reddit” traders jumped into the pot sector. cbdMD stock has since pulled back to just below $3.00, where I see an aggressive opportunity.

Chart courtesy of StockCharts.com

Steady Revenue Growth Key for YCBD Stock

cbdMD Inc reported tiny revenues in 2017 and 2018, prior to accelerating to a record $41.9 million in 2020.

Fiscal YearRevenuesGrowth
2017$4.5 MillionN/A
2018$460,000-89.7%
2019$23.7 Million5,052%
2020$41.9 Million77.1%

(Source: “cbdMD,” MarketWatch, last accessed July 7, 2021.)

While cbdMD Inc’s revenue growth is showing signs of normalizing, it would be hard to find similarly high growth rates in most sectors.

Analysts estimate that the company’s revenues will grow by 25.3% to $52.5 million in 2021, followed by 17.9% growth to $61.9 million in 2022. (Source: “cbdMD, Inc. (YCBD),” Yahoo! Finance, last accessed July 7, 2020.)

cbdMD Inc has been losing money and has yet to generate positive earnings before interest, taxes, depreciation, and amortization (EBITDA) or free cash flow. I expect these metrics to improve as the company streamlines its cost side while driving revenue growth.

Fiscal YearGAAP Diluted Earnings Per ShareGrowth
2017-$0.38N/A
2018-$0.0586.0%
2019-$2.825,199%
2020$0.27109.6%

(Source: MarketWatch, op. cit.)

On an adjusted basis, cbdMD Inc is expected to lose $0.22 per diluted share in 2021 before narrowing its loss to $0.06 per diluted share in 2022. (Source: Yahoo! Finance, op. cit.)

For now, the company’s financial situation is healthy. cbdMD has strong working capital, a manageable debt of $8.3 million, and $24.7 million in cash.

Analyst Take

My bull thesis for cbdMD Inc is the huge potential of the CBD market, not only in the U.S., but globally. The company’s strategy to enter the CBD pet product market has been paying off.

One good sign is that insiders have been snapping up shares of cbdMD stock. Over the past six months, insiders added a net 1,856,010 shares of YCBD stock. (Source: Yahoo! Finance, op. cit.)