#cvsciences

CV Sciences  fell in Wednesday trading as the company missed on both earnings and revenue. The San Diego-based CBD company lost about 25% of its value during Wednesday's trading session following the news. As a company that has missed estimates in three of the last four quarters, investors appear concerned. However, CV Sciences remains the second-largest hemp CBD company in the U.S., lagging only Charlotte’s Web Holdings . With a strong market position and massive overall growth in the industry, investors can make a strong case for buying this dip.

CV Sciences Missed On Earnings, Revenue

For its third quarter, the company reported a loss of one cent per share. This fell short of Wall Street expectations by two cents per share as analysts had predicted a profit of one cent per share. The company earned three cents per share in the year-ago quarter. Revenue also came up short as the company reported bringing in $12.6 million. This fell short of estimates by $6.01 million and represented a 7.4% drop on a year-over-year basis. The company blamed lower revenues on an uncertain regulatory environment for CBD as well as rising competition. For the drop in profits, they blamed reduced sales as well as increased investments in sales, marketing, and R&D. This led to a massive selloff. CVSI stock had closed at $2.10 per share before the report. However, in Wednesday trading, CV Sciences fell as low as $1.25 per share before staging a partial recovery. CVSI stock rose as high as $1.71 per share before pulling back in the afternoon. It closed the Wednesday trading session at $1.58 per share.

CVSI Grows Its Footprint Amid Competition

Given the strides CVSI stock made in recent months, the results appear baffling. During the quarter, the company’s store count rose from 4,591 to 5,435. These stores also include retailers such as Kroger , CVS Health , and The Vitamin Shoppe . Admittedly, competitors continue to enter the market. During the summer, Canopy Growth broke ground on a hemp industrial park in upstate New York. However, analysts expect the compound annual growth rate for the CBD market to reach 125.58% between 2019 and 2026. This growth rate should help to ensure growth, particularly to larger players such as CV Sciences.

Should I Buy CVSI Stock?

The prominence of CV Sciences  stock has risen in recent months. It received a considerable boost when the 2018 Farm Bill fully legalized hemp. The increased exposure from these sales played a role in Piper Jaffray initiating coverage on the stock with an overweight. However, CVSI stock remains on the over-the-counter market. Also, with its $330-plus million market cap and its base in the U.S., most investors have ignored it in favour of the largest Canadian players. Still, CVSI remains well-positioned to move higher as it grows with the emerging CBD industry.

Overweight Rating a Coup for CVSI Stock

In mid-August, Piper Jaffray analyst Michael Lavery placed a $5 price target on CVSI stock. That sent CV Science surging from the $3.10 per share level to as high as $3.89 per share over the next ten days. It has since fallen back below $3.30 per share. Certainly, attitudes have turned bearish across the cannabis industry. This has affected both CVSI and even top players such as Canopy Growth  and Aurora Cannabis . Profit estimates have also fallen for CVSI stock. The predicted 11 cents per share in annual earnings one month ago has fallen to a four-cent-per-share loss. Although Wall Street still expects a profitable fiscal 2020, earnings estimates have fallen to 13 cents per share, down from 22 cents per share recently. However, even with the pullback, the importance of this rating to the American cannabis industry cannot be overstated. In a market dominated by Canadian players and an industry hampered by a Schedule I designation, the overweight rating wins the company some needed recognition.

Market May Underrate Company Advantages

CVSI stock holds some advantages over most of its peers. The company operates in the hemp space. Thanks to the 2018 Farm Bill, hemp is the one form of cannabis that has become fully legal across the U.S. Without the restrictions of Schedule I, it can now operate across state and national boundaries with relatively little interference from the government. It has also secured sales agreements with the likes of Kroger , CVS Health , and more recently, Vitamin Shoppe . This has helped CV Sciences become the second-largest CBD company in the U.S. by revenue. With expected revenue growth of 42.6% this year and 49.4% in fiscal 2020, it should remain one of the top players in the industry. Moreover, at least for a marijuana equity, CVSI supports a reasonable valuation. It trades at only 5.6 times sales, well below the triple-digit sales multiples driving many Canadian marijuana equities. Furthermore, its forward price-to-earnings (PE) ratio of about 25.4 makes it enticing to investors looking for bargains.

Final Thoughts On CVSI Stock

CV Sciences (OTCQB: CVSI) generated revenue of $14.9 million for the first quarter of 2019 after tying up a supply deal with national drug store chain CVS. The Nevada-based CBD producer increased the number of stores it supplies by more than 1,000 during the quarter and that helped spark 85% year-on-year revenue growth. Its products, led by the bestselling PlusCBD Oil, were stocked in 3,308 stores as of March 31, 2019, a 48% increase from December 31, 2018. “As anticipated, since the passage of the 2018 Farm Bill, we have seen significant interest in the hemp-derived CBD category across retailers and channels, and we are in discussions with multiple retailers for new retail placements,” said chief executive Joseph Dowling. He pledged to invest in expansion in order to meet growing demand among retailers and consumers for hemp-based CBD wellness products. The firm believes its deal with CVS will usher in a new era that sees more national food retailers, drug store chains and mass merchandisers list CBD products.

Golden Handshake Triggers Operating Loss

CV Sciences stock opened at $5.12 on Wednesday, May 8, but that decreased to $4.96 when trading opened on Thursday, May 9. Within 15 minutes of trading it was down to $4.64, its lowest since mid-March. The firm reported an operating loss of $9.4 million in the Q1 2019, compared to an operating income of $700,000 during the same period in 2018. It attributed this primarily to the retirement package put together for Michael Mona Jr., who stepped down in January, leaving Dowling to run the company. His son and co-founder, Michael Mona III, was previously president, but that position was eliminated and he is now chief operating officer. Diluted net loss per share was $0.10 in Q1 2019, compared to net income of $0.01 per share in Q1 2018. It ended the first quarter with cash of $13.6 million, up by $1 million after it generated $800,000 from operations during those three months.

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