Organigram Inc.

Organigram Inc. (TSX: OGI) is a licensed Canadian producer of cannabis products. Organigram focuses on producing exceptional, indoor-grown cannabis for patients and adult recreational consumers, as well as developing global business partnerships. 

Why Should Investors Book Profit?

• Technical showing possible correction: The stock of OGI is on a downtrend since September 2021 and is trading near the lower band of its 52-weeks trading range. The stock corrected ~22% and ~33% in the last three months and six months, respectively and has closed below its simple moving averages of 50-days and 100-days, respectively. This is an indication of weak price action and implies a possibility of further price correction from the current trading level.

• Weak operational metrics: Despite reporting a 75% y-o-y jump in the topline at CAD 44.345 million in Q1FY22, the company failed to retain the momentum, and reported an Adjusted EBITDA loss of CAD 1.887 million and net loss of CAD 1.305 million, respectively. The company is battling with higher input costs, and the continuation of the above trend is likely to dampen the company’s profitability and cash flows.

• Sequential decline in cash balance: At the end of Q1FY22, the group reported a lower cash and short-term investments balance of CAD 168 million compared to CAD 184 million in Q4FY21. This might act alarming and might impact the company’s overall liquidity position.
  

Valuation Methodology (Illustrative): EV to Sales based.

Analysis by Kalkine Group

Stock Recommendation

The consumption of the cannabis products is subjected to consumer preference, and a change in preference might lead to lower sales volume and would subsequently impact the company’s topline and cash flows. We have valued the stock using the EV to Sales-based relative valuation method and have arrived at a double-digit downside (in percentage terms). For the said purposes, we have considered peers like Green Thumb Industries Inc, Hexo Corp etc. Considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock of OGI at the current market price of CAD 2.00 at 10.00 am Toronto time on January 19, 2022.

One-Year Technical Price Chart (as on January 19, 2022). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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