Stock market investors once again swam in red ink on Wednesday, with the TSX, Dow Jones, S&P 500 and Nasdaq all down by between three and five per cent. Nearly every market sector closed lower, as the CONVID-19 virus continues its rounds around the globe, attacking not only people, but also their portfolios. This is compounded by the single greatest emotion that drives the bear market machinery: fear.
The Cannabis markets in Canada and the USA are taking big hits, as they have been battling issues in the market with regulations and demand even before the virus took center stage. Now, the Cannabis market is at a crossroads, with a large number of companies running out of places to raise money to continue operations. The dichotomy in all this is while some companies in the majority of sectors are being stripped away of their value, other sectors are given an opportunity to show their recession and bear market resilient nature.
Aurora Cannabis (NYSE:ACB) is not resilient to turbulent markets, and it appears they are on the verge now of being de-listed from the national level exchanges, and file with over the counter markets in the USA and Canada.
Both major stock exchanges–Nasdaq and the New York Stock Exchange (NYSE)–require listed stocks to maintain a trading price of $1 or more. If a company trades for less than $1 per share for 30 consecutive trading days, as Webvan and Salon have, the process of delisting begins.
This posses a new problem. In most cases, companies would simply gather up some positive news and limit any company wide dilution to inject a little health back into the stock. However, because the price of the stock is now below $0.90 per share, the only means this company has to access cash is to sell its common stock in large quantities and increase the Delta-1 of dilution.
If the company is unable to do so, Nasdaq then notifies the company of its imminent delisting. A company then has one week to issue a press release telling the world, and its stockholders, the bad news. Failure to issue the release results in a trading halt. Within that seven-day period, the company can also request a hearing to appeal the delisting decision. If it fails in its appeals to Nasdaq, the company can take its case to the SEC and then on to the federal courts.
Taken together, ACB has until April to get the price over $1.00 on a consistent basis before they get notification of its de-listing process. However, in order to do this, they need to stop all dilution. However again, this is not possibly as this now the only means for the company to access capital. Only time will tell what the company will do, and how they will handle being de-listed.
On the other end of the spectrum, how are some companies reporting strength during this current fear driven bear market?
While the majority of companies within a sector is limiting them selves to their respective markets, some companies such as Surge Holdings Inc (SURG) has begun generating outsized revenue growth and market share in large, underserved markets. The company has even been able to pay off one of their notes before it could ever convert. Previously, investors were taken by surprise when the company announced that it now has an annualized revenue run-rate in excess of $10 million, with rapid growth in Surge Logics sales with an increase of an estimated 1000% in January 2020 Versus the same period as last year. This puts Surge Holdings Inc into a completely difference category in the OTC Markets, and the question now remains, when will they company make their official application to up-list to NASDAQ.
Led by major top-line growth from the ECS acquisition and with meaningful store deployment inflection points around the corner, we have raised our forecasts and price target. These new estimates call for revenue to leap from $29.1M in 2019 to $109.3M in 2020 and $237.8M in 2021, with EPS reaching $0.03 in 2020 and $0.23 in 2021.Our new 2020 target of $3.45 reflects 15x 2021E EPS and 1.5x 2021E sales, and we expect the figure to move higher.
Additional, potential valuation catalysts lie ahead. A major fintech/supply chain peer trades 31x next year’s EPS, indicating the current valuation has a lot of room to move higher. Management plans to up-list SURG to NASDAQ which would also serve as a valuation catalyst.
These new acquisitions represents an enormous amount of potential growth as well as some certain growth. Trailing revenues of $4.9 million for 3rd Qrt or $19.6 million on an annualized basis are a strong foundation to build upon.