Village Farms Cannabis Stock Down 23%: Are Lower Costs And Increasing Sales A Signal For Investors?

Despite a 23% decrease in stock price over the past month, Village Farms International VFF showcases a robust financial outlook with compelling growth in sales and improvements in gross margins and SG&A efficiencies.

As outlined by Pablo Zuanic of Zuanic & Associates, the strategic positioning of VFF in key markets and product categories continues to strengthen its market share and operational metrics, indicating a resilient business model even amidst broader market volatility.

Growth And Market Dynamics

According to Zuanic’s latest report, the company's strategic focus on key product formats and market expansions have significantly bolstered its market share and financial standing.

The Hifyre data highlights a year-over-year (yoy) sales increase of over 40% in Q2 2024, driven by strong performance in April and May where sales surged by 34% and 53% respectively. This acceleration is notably higher than the overall market growth.

Village Farms’ growth is largely attributed to its dominant performance in key Canadian regions and successful product lines. For instance, according to Zuanic, sales growth in Ontario and Alberta outpaced broader market trends, with the company maintaining a leading position in these provinces.

Additionally, the pre-roll segment, particularly regular joints, demonstrated a growth rate of approximately 70% yoy.

Strategic Positioning And Valuation

Zuanic points out the attractive valuation of Village Farms’ stock. Despite a 23% decline in stock value over the past month, he considers it undervalued, especially when non-cannabis assets are excluded, pegging the cannabis unit at $7 million.

This valuation presents a compelling buying opportunity, especially given the company's status as a "blue chip" within the Canadian cannabis sector.

Analyst’s Insight

Zuanic expressed confidence in Village Farms’ market strategy and execution. "We are observing significant operational leverage from Village Farms' sales ramp. This, combined with improving gross margins and stable SGA costs, leads us to be optimistic about their earnings trajectory. The stock's current valuation, especially when adjusting for non-core assets, presents an attractive entry point for investors."

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