Medipharm Labs (TSX: LABS) filed its second quarter earnings after the bell this evening, reporting revenues of $31.47 million for the three month period ended June 30, 2019, and a net income of $1.96 million after tax, making it one of few cannabis focused firms to post a profitable quarter.
Medipharm also has a fairly strong balance sheet, posting a cash reserve of $72.72 million, and trade receivables of $25.36 million. Total current assets filled out to $142.92 million, and overall assets of $174.31 million. This compares well to the total liabilities currently faced by the firm of $53.20 million, the vast majority of which is trade payables at $43.67 million. Thanks to a lack of convertible debt, the equity is in a strong position going forward relative to that of many of its peers.
The firm reported earnings per share of $0.02 for the quarter, and $0.01 for the current fiscal year.
While overall the company is in a strong financial position, especially relative to its peers, there are some areas of concern for shareholders. The largest concern however is the question of whether its earnings are suitable for an equity with a market capitalization of $930 million. Based on the current run rate of ~$106 million per year, this puts Medipharm Labs at a rough valuation of 9x sales. While suitable in the bull market that is cannabis equities, such valuations are out of line for more mature sectors.
There’s also the concern that licensed producers are currently focused on entering the extraction space themselves as a means of cutting outside costs and the reliance of third party providers. Producers such as WeedMD (TSXV: WMD) and Aphria (TSX: APHA) each plan on obtaining extraction capacity in excess of 200,000 KG of biomass per annum, which is similar in size to the current capacity exhibited by Medipharm Labs. As this additional capacity comes online across the sector, its likely that Medipharm will be subject to margin suppression as means of competing.
Medipharm Labs closed todays session at $6.86, down $0.31, or (4.32%).
Information for this briefing was found via Sedar and Medipharm Labs. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.