Investors who bought stocks during the COVID-19 market crash in 2020 have generally experienced some big gains in the last two years. But there is no question some big-name stocks performed better than others since the pandemic bottom.
HEXO's Bumpy Ride: One company that has been a disappointing investment in the past two years has been Canadian cannabis company Hexo Corp (NASDAQ:HEXO).
HEXO battled a difficult Canadian cannabis market throughout 2020.
HEXO has repeatedly been forced to raise capital by diluting investors with public offerings, and its outstanding share count has ballooned from under 80 million shares to more than 600 million shares in just three years.
At the beginning of 2020, HEXO shares were trading at around $6.60. By the beginning of March, the stock was down to $4.40 after news of the coronavirus spreading in China prompted concerns about a U.S. pandemic.
HEXO bottomed at 35 cents during the pandemic-driven on March 18, 2020. Fortunately for HEXO investors, the selloff didn’t last long. By June, HEXO shares made it back up to $1.29, but the rally stalled at that point until the November U.S. presidential election.
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After the stock fell below the $1 NYSE minimum share price requirement for listing for more than 30 days, HEXO was forced to complete a 4-for-1 reverse stock split in December 2020.
A victory by Democrat Joe Biden in November 2020 and a surprise blue wave giving Democrats control of both the Senate and House sent cannabis stocks soaring on optimism that U.S. cannabis legalization may be just around the corner.
HEXO In 2022, Beyond: HEXO traded as high as a post-split price of $11.04 in February 2021 during a retail investor-fueled short squeeze.
A lack of progress on U.S. legalization and more lackluster growth numbers from the Canadian cannabis market have made 2022 another difficult year for cannabis stocks. As HEXO's revenue has grown, so too has its net losses, continuing the cycle of cash burn and share offerings.
HEXO shares have been drifting steadily lower since February 2021. HEXO announced yet another $40-million stock offering in May 2022. To make matters worse, Republicans appear poised to recapture at least one of the two houses of Congress in the November election, potentially closing the window of opportunity for federal U.S. cannabis legalization. At this point, HEXO shares have traded all the way down to 18 cents, opening up the possibility of a potential Nasdaq delisting or another reverse stock split.
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At this point, investors who bought HEXO on the day it hit its pandemic low and held on have generated a negative overall return on their investment. In fact, $1,000 in HEXO stock bought on March 18, 2020, would be worth about $127 today.
Looking ahead, analysts aren't expecting HEXO stock to rebound much in the next 12 months. The average price target among the seven analysts covering the stock is 19 cents, suggesting 4.7% upside from current levels.
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