The Valens Company (TSX:VLNS) stock has fallen nearly 50% in 2020 as some lackluster results in the cannabis industry has made many investors bearish on pot stocks. Valens released its quarterly results last week, for the third quarter, which went up until the end of August.
There were positives for Valens, as the company’s sales numbers were up from the previous period, rising a modest 2.8%, from $17.6 million in Q2 up to $18.1 million. Valens also reported a smaller loss of $3.1 million, compared to a net loss of $3.5 million in the previous period.
Valens said that it’s significantly expanded its pipeline, "having manufactured a record-breaking 56 SKUs that span four product categories, with formats ranging from disposable vape pens, vape cartridges, oils and oral sprays, to beverages and concentrates."
It’s an ambitious move to try and grab more market share. However, the challenge will be keeping products moving. One of the dangers with producing too many SKUs is that they may not all be moving, and if they’re not, a company will incur storage-related costs and runs the risk of having to write-down slow-moving inventory at a later date.
Another concern is that the company’s gross margins have shrunk. A year ago, Valens’ gross margin was just under 78%. This past quarter, its margin came in at less than 40%. Lower margins will make it harder for Valens to turn a profit, even with an increase in revenue.
Currently, Valens’ stock is trading at just over two times sales – significantly less than the multiple of 28 that investors were paying for it a year ago. However, with worsening financials and only minimal growth, Valens just isn’t providing enough of a reason for investors to buy the stock today.
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