Shares of multi-state marijuana operator Ayr Wellness (AYRW.F 5.26%) have fallen 66% over the past year, performing only slightly worse than the Horizons Marijuana Life Sciences ETF that has declined by 58%. The stock has hit a new 52-week low in the process.
The good news is that Ayr Wellness released a strong fourth-quarter earnings report this month, which should at least give investors some hope that the business is going in the right direction. Is the stock due for a rally, and could now be the time to buy it before its shares take off?
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Ayr's revenue more than doubled in Q4
On March 17, Ayr Wellness reported its fourth-quarter and year-end earnings for the period ending Dec. 31, 2021. The company posted revenue of $111.8 million for the quarter which was up 134% from the $47.8 million that it recorded in the prior-year period. Its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $26.1 million also rose by 40% and was an impressive 24% of EBITDA.
The growth comes due to the company's expansion into new and existing markets. And the company is still planning to invest in more opportunities this year.
Revenue run rate to hit $800 million by the end of the year
The company projects that for the first half of the year its performance will be flat (due to construction and regulatory issues) but as it expands in markets such as Massachusetts and New Jersey (which should commence adult-use sales later this year), its annual run rate in revenue should close in on $800 million before the year is over. Right now, it's at a run rate of just under $450 million.
The catalysts behind that growth include cultivation expansions, organic growth, acquisitions, and a new market in New Jersey (recreational use) opening up. Today Ayr Wellness has 71 dispensaries up and running and by the end of 2022, it expects that figure to grow to more than 90. The company has roughly $70 million in capital spending planned for the next 12 months which will help increase its cultivation and production facilities from a capacity of 557k square feet to more than 1.2 million.
That's a lot of growth on the horizon for Ayr Wellness and the main question mark may be around if it will need issue new stock to help pay for all that. As of the end of 2021, the company reported cash of $154.3 million. That's sufficient to fund its day-to-day operations, which during the course of the past year used up $27.8 million. However, Ayr Wellness also spent $219.6 million in investing-related activities in 2021, including $100 million on the purchase of plant, property and equipment. As the company aggressively grows its business, the one drawback may be the inevitable need to raise more cash, likely through the equity markets -- which will mean more dilution for existing shareholders.
How Ayr's valuation compares to other pot stocks
When looking at forward price-to-sales multiples, Ayr Wellness stock looks cheap when compared to some of its key rivals in the marijuana industry:
AYRWF PS Ratio (Forward) data by YCharts
At a modest valuation, Ayr provides investors with lots of value given the growth opportunities it possesses, making it a potentially attractive investment today. Although investors may not be willing to pay the same premium for it as larger marijuana companies like Curaleaf Holdings or Trulieve Cannabis, Ayr Wellness definitely isn't an expensive MSO to invest in today.
Should you buy shares of Ayr Wellness today?
What makes Ayr Wellness a promising buy is that not only is its stock cheap, but that the company is in some of the top cannabis markets in the country, including Florida, Illinois, Pennsylvania, and Arizona.
Unfortunately, the lack of progress with legalizing marijuana in the U.S. has put pot stocks on the back burner for many growth investors. And that means even these strong results from Ayr Wellness and its impressive forecast for 2022 may not be enough to get its shares rallying.
However, for investors who are willing to remain patient and hang on to the stock, there could be significant upside in holding on as the company's shares haven't been cheaper than where they are now.
