Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
The cannabis market is speculative. No doubt about it. You would have heard investors say, “cannabis stocks are too risky, most of them are unprofitable, and promise extraordinary growth”. For the most part, YIG would have to agree. However, EOF holds the right mix of financial ingredients to create not only viable HEMP products but also a recipe for future stock growth in 2020. EOF is profitable, has diversified operations, and substantial institutional investment.
So, who is Eco fibre ltd?
Ecofibre Ltd (EOF) is a HEMP company. EOF cultivates and manufactures HEMP for the Australian and US markets. EOF is broken down into three principal business segments:
- Ananda Health (Medicinal) – US Market
Ananda Health producers outstanding Hemp products to US pharmacies and healthcare professionals. EOF aims to capture the US pharmacy market and create an impressive network of partnerships through Ananda Health.
Also, Ananda Health provides educational training platforms to support pharmacists and practitioners.
- Ananda Food – Australian Market
Ananda Food producer’s hemp-based foods that are 100% Australian grown. Ananda’s processing facility is in NSW and is HACCP (International standard for effective food control) certified. In addition to NSW, Ananda Foods cultivate Hemp in Tasmania. Tasmanian weather is favourable to high-quality Hemp crops.
Moreover, Ananda Food supplies the Woolworths Marco Brand with hemp food. Furthermore, EOF owns the entire value chain of Ananda food, which ensures maximum quality.
- Hemp Black (Industrial application)
Hemp black develops industrial solutions for five vital textile products. These include carbon-infused high-performance fibre, water-based ink, vegan leather, polymer fibre, and nanofilm. Hemp black is still waiting for patent approval. Hemp black is still in the prototype phase. However, the business is releasing prototypes in Q2/Q3 of 2020.
EOF is profitable – 6 million (Q2 – 2019). Profitability is a green light for the smart investor. Profitability can lead to dividends and highlights how EOF’s product range and operations are successful in producing a profit. Profit is of fundamental importance in the Australian marijuana market. Because many cannabis stocks possess an extensive product range, forecasted phenomenal growth but fail to create a profit. Moreover, a profitable cannabis company is likely to attract more institutional investment and thus drive up the stock price.
Furthermore, EOF increased its revenue by 520% (June 2018- 2019). EOF’s revenue growth illustrates two positives. First is the effectiveness of Ananda Health to prosper off the US pharmaceutical market and second being Ananda Foods’ successfulness in reaping the financial benefits of the Australian health food sector.
Lastly, EOF’s debt levels reduced by 78% over the last year (June 2018-2019). Indicating less risk.
Here at YIG, we like to provide young investors with a balanced perspective. Therefore, despite the overflowing amount of healthy financials, the negatives (risks) must be examined.
First off, EOF’s return on equity is 14.2%. This means for $1 of shareholder equity, the company generates 0.14 cents profit. From an unbiased perspective, 14.2% is considerably low. Because ROE illustrates how effective EOF is at using shareholder equity to yield a profit. Thus, meaning the higher the ROE, the better.
Second, it could be argued that 103% surge in share price is indicative of another rapid rise, which could be followed by a sharp decline. In turn, creating a parallel to the meteoric rise and now decline of EXL.
Is EOF a buy for 2020?
Look, all cannabis stocks are risky. However, EOF is already generating a profit a year in. Meaning, investors will prefer EOF over other unprofitable marijuana stocks, thus decreasing the risk. EOF’s impressive 2019 financial results such as 520% revenue growth, 78% debt reduction and a 170% increase in net profit create a promising 2020 financial calendar. Moreover, if EOF’s profits continue to rise the above ROE issue will disappear.
Furthermore, Ananda Health’s strong market position in the US pharmaceutical sector will continue to experience strong growth in 2020. Also, the movement of Hemp foods being a staple part of our diets will be a catalyst for strong revenue growth in Ananda Foods. Lastly, Hemp black will begin to commercialise its technologies in 2020 providing further upside growth. Investors must conduct extensive research before entering however our research shows nice potential however also huge systematic risk.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Associate of YIG, Patrick McLoughlin