High Tide Inc. Moves Up On Strong Results
High Tide Inc. (NASDAQ: HITI) is a breath of fresh air in the cannabis industry. In business for roughly a decade, the company is a small but aggressively growing vertically integrated Canadian-based cannabis company with a dual focus. Not only are they focused specifically on the retail market but they also manufacture market, and retail cannabis accessories. Most importantly, the company has made a couple of moves over the last year that not only advance the company's agenda but improve its value for shareholders. Among these are the elimination of senior secured debt, uplisting to the NASDAQ exchange, and aggressive acquisitions that led to the stock’s inclusion into 3 ETFs. The bottom line, if you're interested in the cannabis Market or growth stocks, High Tide should be on your watchlist if not in your portfolio.
Aggressively Growing High Tide Doubles In Size
High Tide Inc. had a fantastic third quarter in which organic growth was boosted by aggressive acquisitions. The company reported $48.10 million in consolidated revenue good for a gain of 99% over last year. The gains were driven by acquisitions that include META growth and the Smoke Cartel which helped boost exposure in the company's home country of Canada. On a segment basis, Canadian sales account for 80% of revenue while sales in the US, which are up 69% from last year, make up the rest. Retail sales account for 96% of the revenue with the rest made up by wholesale and corporate.
Movie down to the margin is where we encounter the bad news. The company's gross margin contracted 500 basis points to 35% under the weight of rising costs. While negative, margin contraction should prove to be a near-term headwind as the company integrates its acquisitions and realizes cost synergies and efficiencies of scale. The worst part, however, is that the company posted an operating loss but that 2 should prove to be a new term hurdle and soon overcome.
Looking forward, we expect to see the company's revenue continued to grow. The balance sheet is strong and supports additional acquisitions and the company's plans include organic expansion too. High Tide added 7 new stores over the last quarter for a total of 93 and hopes to have 110 by the end of the calendar year. And then there is the membership club to consider. The company launched the Cabana Club membership club for its clientele and membership is up 45% over the past year.
The Analyst Like High Tide
The data from PriceTargets shows the two analysts that are covering the stock rate it a buy and have a consensus price target 85% above the current price action. Both of the ratings were set prior to the earnings release so we will not be surprised to see one or both of the analysts raise their price targets very soon.
The Technical Outlook: High Tide Tests For Support
Shares of High Tide have been moving sideways over the past 8 months and may continue to do that over the mid-term at least. The Q3 results are good but have share prices moving lower so we may see additional weakness in the near term. The caveat for the bears is that support is already evident near the $7 level and well above the bottom of the range established earlier this year. If price action falls below $7 it may fall as low as $6 before reversing within the range. A move higher may find resistance at the $9 or $10 level depending on how results from other cannabis companies affect the market.
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