KushCo Holdings Inc (OTCMKTS: KSHB) acquisitions are slowly paying off if a 240% increase in revenue in the recent quarter is anything to go by. Rising revenues, as well as expectations of $75 million worth of sales over the next three years, underscores the company’s growth metrics.
KushCo Holdings Inc Price Analysis
After a torrid start to the second quarter, the stock has once again started surging an indication that investors are slowly taking note of the company’s long-term prospects. Standing in the way of KushCo breaking out is a tight $5.20 to $6.30 trading range. KSHB Daily ChartWith the upward momentum showing signs of gathering pace, KushCo could be on its way back to 52-week highs of $7.20. A rally followed by a close above the $6.30 mark should reaffirm the emerging uptrend, setting the stage for the stock to continue surging.Conversely, KushCo needs to hold above the $5.20 mark to avert further slides. A violation of the $5.20 level could result in the acceleration of the sell-off wave. In our view, the stock remains well supported for further gains as it continues to bounce back from the lower end of the trading range.
What Does KushCo Holdings Inc Do?
KushCo bills itself as a premier producer of ancillary products and services in the cannabis and hemp industries. Since its inception in 2010, the company has sold more than 1 billion units to growers processors and producers. Through its subsidiaries, the company also offers product quality, customer service, compliance knowledge for serving the needs of a diverse customer base.
Revenue Growth
KushCo posting revenues of $35.2 million representing a 240% increase for its fiscal second quarter could explain why it is a potential break out play after a period of consolidation. Q2 revenues beat analyst’s expectations of $25.5 million.Revenue growth came into being, thanks to expansion into new markets as well as growth in the customer base. KushCo also leveraged its diverse business units to cross-sell product sales and gain market share.The company has since expanded its footprint to all the states where cannabis is legal in the U.S. Plans are also underway to sign long term supply agreements with several large customers in a bid to strengthen the current revenue base.According to the Chief Executive Officer, Nick Kovacevich, strategic initiatives also continue to accelerate top line growth. The initiatives have helped strengthen the company’s cash flow thanks to the elimination of free shipping and renegotiation of terms with vendors. Improving gross margins remains the company’s top priority going forward.
“As a result of a strong first half of the year, including the signing of a number of long-term supply arrangements-in-principle with several new large, well-known customers, we are raising our revenue guidance from between $¬110 million and $120 million for the fiscal year 2019,” stated Mr. Kovacevich.
However, widening net loss is a point of concern for investors. Net loss for the fiscal quarter widened to -$8.9 million compared to a net loss of -$7.6 million reported a year earlier. KushCo exited Q2 with cash amounting to $17.9 million compared to $3 million as of November 30, 2018.
IEKO Production Deal
The solid financial results came on the heels of the company inking an agreement with IEKO for the production of biodegradable cannabis packaging solutions. The two are to work together to develop formulations as well as products for the CBD and processing industries.
"It's our responsibility to reimagine our products today to ensure the viability of our planet tomorrow. Customers are demanding an environmentally conscious solution for their everyday packaging needs,” explained Mr. Kovacevich.
Bottom Line
KushCo is in a phase of robust growth if a 240% increase in revenues is anything to go by. While widening net loss is a point of concern, the rate at which sales are growing should help offset such losses going forward.A robust balance sheet also means the company is well financed to pursue strategic initiatives for accelerating growth and generating shareholder value. After a minor correction following an excellent start to 2019, the stock is likely to resume its uptrend as underlying fundamentals support further upside action.We will be updating our subscribers as soon as we know more. For the latest updates on KSHB, sign up below!Disclosure: We have no position in KSHB and have not been compensated for this article.
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