On today’s Breakouts report, there are 55 stocks on the positive breakouts list (stocks with positive price momentum), and nine stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that is on the positive breakouts list. On Monday, the share price closed at a record high on high volume. The stock has six buy-equivalent ratings and one “neutral” recommendation. The average one-year target price implies a potential 41 per cent return - on top of its 121 per cent year-to-date gain.
The security discussed today is Ayr Strategies Inc. (AYR.A-CN), which is listed on the Canadian Securities Exchange.
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
Ayr Strategies is a vertically-integrated cannabis multi-state operator (MSO) with established operations in Massachusetts and Nevada and expansion plans in three other U.S. states.
Its recently announced acquisitions in the states of Ohio (processing facility and cultivation under construction) and Arizona (three dispensaries) are expected to be completed in the first quarter or early second quarter of 2021. In addition, the company is expanding into Pennsylvania (three dispensaries will be opened in the first quarter of 2021 and another three dispensaries will be opened in the second and third quarters of 2021).
Investment thesis highlights
- ·Continued legalization across U.S. states.
- Growing mainstream acceptance of marijuana.
- Robust growth profile – organic and acquisition growth. Management targets having future operations in approximately 12 U.S. states.
- EBITDA positive with high margins.
- Valuation. Room for multiple expansion as the company expands its footprint into other U.S. states, continues to deliver strong revenue growth, and liquidity improves (daily average trading volume).
On Nov. 18, the company reported solid third-quarter financial results.
The company reported revenue of US$45.5-million, up 42 per cent year-over-year and slightly ahead of the Street’s forecast of US$43.6-million. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at US$19.3-million, exceeding the consensus estimate of US$17.8-million. The adjusted EBITDA margin was 42.4 per cent. The company generated cash from operations of over US$13-million. At quarter end, the company had US$23.2-million of cash on its balance sheet.
To fund its recently announced acquisitions, management mentioned debt financing on the third-quarter earnings call, “We have been working diligently with strong institutional financing partners to seek to ensure that our expansion is fully funded. We are in the process of finalizing debt financing documents at terms that have only improved over the last several months … and when these are definitive, we’ll announce the terms to the market. This financing is above and beyond the warrant proceeds and cash flow from operations that we generate every month.”
The company does not pay its shareholders a dividend. Capital is retained in order to fund future growth opportunities.
There are seven firms providing research coverage on this small-cap stock with a market capitalization of $610-million. Five analysts have buy recommendations and one has a “speculative buy” recommendation. Pablo Zuanic at Cantor Fitzgerald has a “neutral” recommendation.
The firms providing research coverage on Ayr Strategies are: Beacon Securities, Canaccord Genuity, Cantor Fitzgerald, Echelon Wealth Partners, Needham & Co., Northland Strategies, and Roth Capital Partners.
On the third-quarter earnings call, Jason Zandberg, an analyst at PI Financial, was on the call asking questions. Consequently, he may initiate coverage on the company in the near future.
In November, all seven analysts covering the company increased their target prices, including:
- Beacon Securities’ Russell Stanley to $44 from $37.
- Canaccord Genuity’s Robert Burleson to $40 from $33.
- Echelon Wealth Partners’ Andrew Semple to $43 from $23.
- Roth Capital Partners’ Scott Fortune to US$30 from US$20.
- Cantor Fitzgerald’s Pablo Zuanic to US$24 from US$13.50.
Robust revenue growth is anticipated by analysts in the upcoming years.
The Street is forecasting revenue of US$151-million in 2020, US$305-million in 2021, and US$401-million in 2022. The Street is anticipating the company to report adjusted EBITDA of US$48-million in 2020, US$131-million in 2021, and US$177-million in 2022. The consensus earnings per share estimates are 81 US cents in 2021 and US$1.73 in 2022.
Analysts commonly value the stock on an enterprise value-to-EBITDA multiple basis.
The average one-year target price is $38.13, implying the stock has 41 -per-cent upside potential over the next 12 months. Individual target prices are as follows in numerical order: US$24, US$25, US$28, US$30, $40 (Canadian) ,$43 and $44.
Over the past year, there has not been any trading activity in the public market reported by insiders.
For several months, the share price has been in an uptrend, making higher highs and higher lows. Year-to-date, the share price is up 121 per cent.
On Nov. 30, the share price closed at a record high of $27.03 on high volume with over 377,000 shares traded. This is well above the three-month historical daily average trading volume of approximately 105,000 shares.
In terms of key resistance and support levels, there is a major ceiling of resistance around $30. Looking at the downside, there is initial technical support around $25. Failing that, there is technical support around $20 (close to its 50-day moving average at $20.15).
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
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