For an industry that sometimes seems like it is full of disappointment with continuous losses and lackluster growth numbers, cannabis investors received a welcome surprise last week from OrganiGram (OGI 1.21%). The marijuana company reported its latest quarterly numbers and they were full of positives.
OrganiGram grew its sales and improved on its margins. By the marijuana industry's standards in Canada, that's definitely a small miracle, one that investors may not have been expecting. Let's take a closer look at the numbers and see if OrganiGram is a pot stock worth buying today.
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Sales soared 128% year over year
For the period ending Feb. 28, OrganiGram reported gross sales of 43.9 million Canadian dollars, more than double the CA$19.3 million it generated in the prior-year period. After excise taxes, net revenue was still CA$31.8 million and up an impressive 117%. What's even more surprising is that the company's market share in Canada was 8.2% in February and for the second straight month it was the number three licensed producer in the country. And it's also in the leading position in the dried flower category, which accounts for half of the entire market.
One of the ways the company has been growing its sales is by launching new products. OrganiGram said it introduced 18 new products during the period, bringing its total core SKUs to 69.
OrganiGram's margins improved along with revenue
What made the quarter a shocking one was that in addition to some solid sales growth, OrganiGram also improved on its margins. Normally, when a company puts out more SKUs and tries to be more aggressive on the top line, it's the margins that suffer. But OrganiGram's adjusted gross margin of 26% was a big improvement from the negative 5% margin that it reported a year earlier.
Furthermore, it reported an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) profit of CA$1.6 million, versus a loss of CA$7.8 million a year earlier. For comparison's sake, rival producer Aurora Cannabis continues to work towards positive adjusted EBITDA and it recently shrunk its quarterly loss to below CA$10 million in the period ending Dec. 31. But unlike OrganiGram, its revenue declined by 10% on a year-over-year basis to CA$60.6 million.
OrganiGram may not be generating as much in revenue (Aurora's business is broader and more geographically diverse), but the company is generating growth and improving its bottom line, which makes it a more sound investment overall.
Is OrganiGram a buy?
Although the results initially buoyed OrganiGram's stock, it is still down 34% over the past 12 months. However, that's still better than the Horizons Marijuana Life Sciences ETF which has fallen 52% during the same period. The cannabis industry hasn't been a popular place to invest in of late, especially with legalization in the U.S. not making any meaningful progress, which may be frustrating growth-oriented investors. Relative to the industry is facing as a whole, OrganiGram's stock has done reasonably well.
The big question for investors as to whether the stock is still a buy right now is in determining whether it is worth a premium, as it currently trades at a higher price-to-sales ratio than its peers:
OGI PS Ratio data by YCharts
If the company can continue to make improvements in future quarters, not only will its P/S multiple improve but there will also be more justification to pay a premium for this promising growth stock.
For investors wanting exposure to the Canadian cannabis market, OrganiGram may be one of the better options to buy today. More conservative investors, however, may want to wait at least another quarter or two to confirm that its top-three position in the market is sustainable for more than just a couple of months.
