Analysts not altering 1933 Industries (CSE: TGIF) price target
When 1933 Industries (CSE: TGIF) reported third quarter sales of $4.6 million in revenue, the price of the shares dropped nearly 10%. To a certain extent, this reaction is consistent with the general weakness in cannabis stocks over the past ten weeks. What a declining market implies is a gradual erosion of investor expectations or a shift from a market that reflects significantly overinflated investor expectations to a market that reflects a significantly underappreciation of expectations on the part of investors.
Canaccord Genuity analyst Bobby Burleson and Jonathan DeCourcey conclude the revenue shortfall was not significant enough to alter their price target of $.70 per share for TGIF and from the lower price, the implied expected return is improved to approximately 65%. They point out that although third quarter revenue fell short of their projection, TGIF’s infused CBD segment with the Canna Hemp brand continued to show strong growth of 61%. Meanwhile TGIF subsidiary AMA’s ability to produce cannabis extracts was constrained but will begin to accelerate as the move into the new facility has commenced. With the Canna Hemp CBD brand offered in over 800 outlets in 46 states, growth over the next twelve months seems assured. In addition, margins were lower than expected because of the dependence on third-party suppliers for biomass that will also change as self-grown product from the new facility contributes more and more of the total need.
Needless to say, I agree with the Canaccord analysts because their expectation is consistent with my knowledge of how the cannabis stock market is functioning at this stage. In addition I agree with the way they have adjusted their expectations to arrive at the conclusion that from current levels a return of around 65% on investment can be anticipated. On a final note, as I look forward I also expect that as revenues grow and margins improve, investors will upgrade their expectations so as we move forward, investors will realize much higher returns than are forecast today.