Is Organigram Undervalued?
It’s hard to talk about value in the marijuana industry. With so much up in the air when it comes to legality and just which markets are going to be open for business and which ones will be prevented from partaking, gauging the true value of a company in such a fluid situation carries with it inherent difficulty. It’s even trickier to talk about undervalued companies considering just how much hype and growth we’ve seen across the industry over the past few years. For this piece, we’ll take a look at OrganiGram Holdings Inc (OTCMKTS:OGRMF), (CVE:OGI). Is the company undervalued? And more importantly, what does the Organigram stock forecast look like?
When talking about undervaluation in the marijuana stock market, I like to look at what separates a company from the pack. Many, many marijuana stocks have jumped by double and triple digits in the past few months. A lot of that was based on inflated valuations and hype, which led to a drawback in February (or at least, played a big part in the withdrawal).
The rush of investors led to an influx of cash and stock gains, which led to many investors speculating that the marijuana industry in its current state suffers from a number of overvaluations brought on by those massive gains.
We’ve seen a pullback for much of 2018 due to that potential rash of overvalued stocks flooding the market and, as such, much of the market is being met with healthy skepticism at this point.
With that in mind, it’s a difficult time to deem any company undervalued. As such, I don’t feel comfortable putting Organigram in that position. I don’t believe the company is particularly undervalued, which isn’t to say it’s a bad stock pick, I’m just not sold that it’s in such a superior position compared to any other Canada pot stocks.
I do believe that the industry as a whole is undervalued to one degree or another, as there is massive international potential contained within these companies. But I wouldn’t necessarily put Organigram at the top of that “most exciting pot stocks” list.
Chart courtesy of StockCharts.com
Organigram Stock Forecast
While I don’t necessarily believe that Organigram stock is undervalued any more than your average marijuana stocks, that doesn’t mean I’m not impressed by the company.
The OGI stock price has dropped by about three percent since the beginning of 2018, but that’s not too concerning when you factor in that February has been a rough go for many marijuana companies.
OGRMF stock did receive a boon in late 2017 when it released its Q1 results, with $2.7 million in revenue and sales of cannabis oil that have more than doubled compared to the previous quarter. The company celebrated its “Shubie Cannabis Oil” as part of the reason the quarter was so successful. (Source: “Interim Condensed Consolidated Financial Statements,” Organigram, November 30, 2017.)
Gross margins jumped from 27% to 40% compared to the previous quarter, while the cost of indirect production decreased to $455,000.
The strong Q1 results were naturally going to help the Organigram stock forecast, but that wasn’t the only news to strengthen the company’s outlook.
The company recently received an expanded cultivation license from Health Canada that was related to the company’s Phase 2 expansion. (Source: “Organigram Receives Expanded Cultivation License,” Cision, February 12, 2018.)
The Phase 2 expansion is looking to ultimately increase the production capacity of the company, with a projected additional 10,800 kilograms per year, more than tripling Organigram’s production from 5,200 kilograms per year to 16,000 kilograms per year.
“This is an important moment for Organigram,” said CEO Greg Engel in a statement. “We have developed a world-class cannabis production facility and are proud to be able to offer our medical and adult recreational customers exceptional award winning, high quality product in 2018 and beyond.”
The expanded license from Health Canada allows of Organigram to continue along with its Phase 2 plan, expand the perimeter of the facility, make use of 10 of its 23 three-level cultivation rooms, and several other approvals for innovative design projects.
The company will then follow that up with a Phase 3 expansion, which will be completed in May 2018 according to current projections. The production capacity would then increase to 25,000 kilograms per year. Phase 4 would be the end game, bringing total production to 65,000 kilograms per year, or over four times the amount the company will have when Phase 2 finishes.
So while my answer to the question of “Is Organigram undervalued?” is “Probably not,” that only applies to the present. There’s strong growth potential contained within OGI stock.
Should the multiple phases of facility expansion proceed apace and fulfill their potential, then I will definitely be eating my words. This type of strong innovation and expansion is exactly what investors should be on the lookout for.
Which is to say that while my Organigram stock forecast doesn’t see the company expanding particularly faster than other marijuana industry mainstays, that could easily change should its expansion impress and fulfill its promise.
With so many companies capable of massive growth in the marijuana industry, it’s hard to qualify one as undervalued when, in my view, the entire industry is undervalued considering just how many untapped consumers exist.
At the same time, some are more undervalued than others, and in my view, Organigram doesn’t quite have enough going in its favor to make it especially more attractive than other options.
That comes with a huge caveat, however; if the company’s planned expansions hit their expected targets, then we’re looking at a whole different company.
My take is that you keep an eye on OGI stock, and if the company hits those expansion targets, that may be one of the stronger times to consider Organigram stock.