News on the reclassification of a marijuana-based drug from a Substance I drug to a Substance V control drug has sent shockwaves through the cannabis sector. As a result, players within the sector now have the chance to produce more drugs and sell them over the counter without the fear of incitement.
Using the above premise, firms invested in the cannabis sector especially in Pharma continue to benefit greatly from the above news. Furthermore, there has also been a lot of traction towards cannabis beverage companies which are currently counted in the industry. With the industry currently standing at $820 million as at 2017 and expected to grow to $2 billion over the next 5 years, individual and institutional investors alike have continued to pour into the sector with the hope of having a piece of the 54% compounded return.
One such company is Puration Inc (OTCMKTS:PURA), which we recommended back in February.
The firm whose share price has been quite volatile over the past one year continues to rise by the day. Over this period, they have had two periods of booms and successive declines which have seen the share price oscillate between $.08 and $.02. However, the share price is currently trading just shy of $.09, significant of the highest price hit during the year. Moreover, the shares traded have also increased drastically to over 20 million with the average number standing above 40 million.
The chart below further explains this price movement:
The reason for such a momentum exuded by the share price is usually either an expected event over the near future or an announcement made by the company which is expected to influence their future performance – sometimes a change of law can also have such an impact. In this case, we are thus looking into PURA so as to establish the reason behind such a price surge and evaluate whether the surge is merely a shock or a lasting price movement.
History of PURA
Before going into the intricacies, however, let us have a look at the history of PURA. Puration Inc was founded back in 2011 and headquartered in Dallas, Texas. The firm deals in the entire chain of water purification: design, development, production, marketing, and distribution of purification products which they sell under the Filter 2GO brand.
Over time, however, they have morphed further into the cannabis sector with an incline towards the development of CBD-infused beverages. The venture has seen them work towards developing the aforementioned brand to ensure that they can ably compete with major players such as Aurora Cannabis (OTCMKTS:ACBFF) which is currently working hand in hand with Coca-Cola to venture into the same space as well as Canopy Growth Corp (NYSE:CGC) which just last year received over $40 million investment – for 9% stake – from Fortune 500 company Constellation Brands (NYSE:STZ), an investment which would aid both firms venture into the same segment.
The result has been that firms have started to view the segment as profitable thus raised interest in it. With PURA already having a standing in the segment, it is expected that their brand will play a pivotal role in ensuring that they successfully curve their niche and consequently grow.
Concentration on Cannabis
Puration Inc announced late last year their new strategy which would see them venture aggressively into the cannabis sector with a specific incline towards boosting their cannabis-infused beverage business. As a result, the firm begun seeking acquisitions as well as broadening their product line. This has seen them launch new products over the past 12 months as well as acquire two new firms in a bid to grow their cannabis stock portfolio.
Currently, the firm has been spinning off their current assets within other business segments. The most recent of these was the spin-off of Nouveau Life Pharmaceuticals Inc (OTCMKTS:NOUV) which operates within the cultivation segment. The result will see the shares of NOUV issued to PURA as stock dividends. The latter is but one of a number of transactions which will see PURA exit their current business segments and focus on beverage segment.
The latter is already happening.
Last year, the firm launched their first beverage, EVERx CBD Sports Water. Since then, their revenues have been drastically rising with the revenue growth currently standing at 600%. Moreover, they are currently developing a new THC-infused product dubbed THCSavor, a move which is expected to be consequently followed by their acquisition of a cannabis player operating within the beverage sector.
The Speculative Growth Company
A recent report by Goldman Small Cap Research concluded that Puration Inc was a speculative buy. The firm also indicated a target price of $.25 per share, a near 200% upside on their current price.
Pegging the above growth on the industry’s expected $2 billion sales expectation, Goldman stated that there is a lot which PURA can do to harness this opportunity. In the report, Goldman noted the current growth the firm is experiencing especially within the beverage segment as being a key factor in determining their future prospects. It stated:
“Puration’s flagship product has enjoyed 600% sales growth since its introduction in 2017. Leveraging this growth, Puration plans to execute M&A and introduce new beverage products”
The report further noted the importance of the current M&A strategy the firm has executed as well as the spin-off which are expected to be key in the firm’s upside potential:
“In our view, these shares are trading at very low levels and offer substantial upside… Thus, we believe the stock could reach higher levels as PURA executes its sales and M&A strategy”
As a result, the analysts predicted a higher target price, signaling their belief in the value expected to be realized from PURA. Investors need therefore to keep a close eye on the firm going forward.
Overlain an already growing sector, PURA’s growth is expected to be accentuated in the future. Given this, investors expect a high reward from the firm both in the near and distant future, in line with the expectations of analysts. We therefore are bullish about the firm’s price.
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Disclosure: We have no position in PURA and have not been compensated for this article.