If you regularly track the pot sector, the current selling capitulation has been difficult to stomach. Just when you think a bottom has been reached, we see further selling, as has been the situation with Harvest Health & Recreation Inc (OTCMKTS:HRVSF, CNSX:HARV), down about 75% from its high in April 2019.
As such, HRVSF stock is worth a look for aggressive risk-capital speculators.
If you were active during the technology stock meltdown in 2000, you could see a resemblance between what is happening with pot stocks and the technology group back then.
Things will eventually reverse course, albeit it could take years.
A look at the Horizons Marijuana Life Sciences Index ETF (OTCMKTS:HMLSF, TSE:HMMJ) shows the negative sentiment toward the pot sector.
The exchange-traded fund (ETF) failed to hold numerous technical support levels and broke below $10.00 to new lows on November 15 on weak relative strength.
The technical charts of the majority of pot stocks are bearish at this time, albeit the degree of the selling has created an oversold condition.
For instance, Harvest Health & Recreation, an intriguing small-cap U.S.-centric pot stock, has been battered, trading at the $2.60 level as of this writing.
Nevertheless, analysts remain bullish on Harvest Health & Recreation stock, despite the massive selling action.
My Bull Case for a Higher HRVSF Stock
My view is that the degree of the selling in Harvest Health & Recreation stock could offer traders a decent risk/reward prospect and a cushioning to the downside.
HRVSF stock could decline further toward its 52-week low of $2.04, which I would view as an opportunity for long-term investors. The key to trading Harvest Health & Recreation would be to enter with small tranches and make sure the total value of one’s position is relatively small.
What’s not small is the size of Harvest Health & Recreation Inc, with a market cap of $753.9 million. (Source: “Harvest Health & Recreation Inc. (HRVSF),”Yahoo! Finance, last accessed November 18, 2019.)
If the company were to deliver on its optimistic revenue estimate of $874.2 million for 2020, the valuation of 1.16 times sales would look pretty good.
Even if Harvest Health & Recreation were to deliver only half of its revenue estimate, the valuation would still look pretty good, given the sell-off.
In other words, I think Harvest Health & Recreation stock is cheap at its current level.
The company has almost $90.0 million in cash and $146.0 million in debt, so an immediate need for capital expenditures is not an issue at this time.
If Harvest Health & Recreation can narrow its loss and produce a pathway toward profitability, I’m pretty sure HRVSF stock will rally.
The current average estimate is for the company to earn $0.26 per diluted share in 2020. The high estimate is $0.31, which implies an attractive forward multiple of eight times. (Source: Ibid.)
While there are no signs that the selling capitulation in the pot stock market is over, I feel that the selling has been extreme.
Harvest Health & Recreation warrants a look for aggressive traders who are willing to stomach the volatility and look to the longer term, where I’m bullish.