Quietinvestor wrote: https://www.fool.com/investing/2021/04/13/will-hexos-bake-sale-cook-its-chances-of-posting-a/
Should you invest in HEXO?
There are two things I steer clear of when investing in companies: businesses with low margins and management that makes aggressive forecasts. HEXO ticks both of those boxes.
I consider anything less than 40% to be a low margin because it means that even with strong sales growth, there may not be much incremental gross profit. If HEXO's gross margin falls to around 30% (which it might, depending on how well its value brand does), then even if the company's quarterly sales were to double by another CA$33 million, that would only mean CA$9.9 million in additional gross profit.
While it may be enough to land the company in the black, it's also assuming a significant rate of growth. And if the company is going to be focusing on the European market, its operating costs and overhead may only get larger in the future, making it more difficult to turn a profit. As of right now, it's a toss-up as to whether or not HEXO can stay in the black once all is said and done. There are simply too many variables to account for right now -- the impact of the acquisition, its values brand, and the pandemic.
And while being a top-three producer in Canada sounds great, investors shouldn't forget that with Aphria and Tilray merging, the field will also be smaller to begin with. HEXO is saying all the right things, but investors should be careful to take it all into context and not be too quick to trust the company's ambitious forecasts. By creating big expectations, it could set the stock up for losses later on if HEXO falls short. Considering all of the other great cannabis companies out there today, HEXO is one pot stock I would avoid.