ITHUF Stock: Why This Pot Play Is Too Cheap to Ignore
Pot stocks have been under pressure after starting the year on a high note. The Horizons Marijuana Life Sciences Index ETF (OTCMKTS:HMLSF, TSE:HMMJ) has corrected by 23% over the past three months, underperforming the S&P 500, which has declined one-percent, and the Nasdaq, which has dropped by 1.6%.
After the initial stock-market excitement in October 2018, when Canada became the first G7 country to legalize recreational marijuana, investors are now looking for evidence that pot companies are growing, instead of merely riding expectations.
You can call this a must-prove moment for cannabis companies. The reality is that many of the smaller players will either fold or be swallowed up by the bigger ones such as Canopy Growth Corp (NYSE:CGC), Cronos Group Inc (NASDAQ:CRON), Aphria Inc (NYSE:APHA), and Tilray Inc (NASDAQ:TLRY).
But while the sector risk is high, there is always room for smaller pot stocks, as long as you are using risk capital. In other words, losing 50% or more wouldn’t be devastating to your portfolio.
A small-cap pot play on the U.S. market with intriguing potential is iAnthus Capital Holdings Inc (OTCMKTS:ITHUF, CNSX:IAN). iAnthus stock traded at a 52-week low of $2.34 on August 15, down a whopping 40% over the past three months and well off from its range high of $7.27.
Chart courtesy of StockCharts.com
At the distressed price, ITHUF stock is worth a look for aggressive traders searching for a possible bounce over the next year.
iAnthus currently operates in 11 states and has about 700,000 square feet of cultivation and processing capacity in Florida, Massachusetts, Vermont, New York, Arizona, and Nevada. And the company is expanding its infrastructure.
Why the Growth Metrics Support My Bull Case
Like many pot companies, iAnthus Capital Holdings Inc has a relatively limited operating history, and much of it is immaterial as far as the amount.
But the key is the estimated growth going forward, especially as more states approve recreational pot, or at least decriminalize possession of small amounts.
(Source: “iAnthus Capital Holdings Inc.” MarketWatch, last accessed August 15, 2019.)
iAnthus is expected to ramp up its revenues to a staggering $174.1 million (or even as high as $236.7 million) in 2019. This would be impressive if the numbers end up coming close. (Source: “iAnthus Capital Holdings, Inc. (ITHUF),” Yahoo! Finance, last accessed August 15, 2019.)
Along the way, ITHUF has been losing money, as the following table of generally accepted accounting principles (GAPP) diluted earnings per share shows. That’s not a surprise, given the high amount of capital expenditure required to build infrastructure.
|Fiscal Year||GAAP Diluted EPS|
(Source: MarketWatch, op cit.)
But the expected surge in revenues is predicted to see iAnthus Capital Holdings Inc report adjusted profits of $0.06 per diluted share this year. The high estimate of $0.23 per diluted share for 2019 equates to an attractive 11 times earnings for iAnthus stock. (Source: Yahoo! Finance, op cit.)
The sell-off in iAnthus Capital Holdings Inc to a 52-week low makes for a good risk/reward proposition, especially with the company’s expectations for this year.
Trading at just over one times its 2019 sales, ITHUF stock is worth a look, especially if you have some loose change lying around.