It has been a rough 12 months for Canadian cannabis player Hexo (HEXO). A pot stock that soared after cannabis became legal in Canada has been on a precipitous downward slide over the last year. Along with broader industry struggles, Hexo has been hampered by earnings misses, a shaky cash position and the resignation of its CFO – all contributing to investor disquiet and an 84% share loss.But is it possible Hexo stock has finally found the bottom? Shares have been on a tear over the past month, up by 131%, while a better than expected 3FQ20 earnings report has played its part in restoring investors’ confidence. It is also the reason why Canaccord analyst Matt Bottomley believes Hexo is taking a “step in the right direction.”In the quarter, Hexo reported net revenue of C$22.1 million, beating the Street’s call for C$20.3 million and up by 30% quarter-over-quarter. The figure was also a 70% increase over the same period last year.The sales growth is mainly down to newly launched products such as hash and extract drops and a strong showing from its value brand Original Stash – first launched toward the end of 2019.Bottomley points out that “…improved operating leverage, higher automation, and a product mix that required less labour hours,’’ resulted in adj. gross margin of approximately 40%, roughly 700bps higher than the previous quarter. The combined effect of reduced operating expenses, improving sales and adj. gross margin led to an adj. EBITDA loss of C$4.3 million, a big improvement on the C$8.5 million loss in the prior quarter.Bottomley is buoyed by the results. However, there’s work to be done before sentiment can truly change.“We believe HEXO’s ability to realize a gross margin that is at the higher end of the industry range is particularly encouraging, given its focus on the lower-priced value segment of the market… However, as we believe HEXO is still in the early stages of its refocused efforts (with its new Cannabis 2.0 products just beginning to launch) we would remain on the sidelines as the company continues to navigate what is still a challenging market in Canada – but we're encouraged by the FQ3 print,” the analyst said.As a result, Bottomley stays on the sidelines, reiterating a Hold rating, while bumping the price target from C$1.30 ($0.96) to C$1.50 ($1.10). The new figure implies upside of 13% in the coming months. (To watch Bottomley’s track record, click here)Is Bottomley’s renewed optimism backed by the rest of the Street? Not quite. Hexo has a Moderate Sell consensus rating, based on 5 Holds and Sells each. At C$1.36 ($1.00) the analysts forecast shares to stay range bound in the near-term. (See Hexo price targets and analyst ratings on TipRanks)To find good ideas for cannabis stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
