The Hydropothecary Corporation is undervalued, says Canaccord Genuity

The only Licensed Producer in Quebec is a buy right now, says Canaccord Genuity analyst Matt Bottomley.

In a research report to clients today, Bottomley inititiated coverage of The Hydropothecary Corporation (The Hydropothecary Corporation Stock Quote, Chart, News: TSXV:THCX) with a “Speculative Buy” rating and a one-year price target of $3.10, implying a return of 156.2 per cent at the time of publication.

Bottomley says a slide in shares of The Hydropothecary Corporation that began soon after its public listing presents an opportunity for investors, as the reason for the pullback is fleeting in nature.

“We believe the primary driver for the company’s reduced valuation relates to trace amounts of myclobutanil found on its product in early May,” the analyst notes. “In our view, this issue is transient in nature, was at a lower concentration level than other industry contaminations, and has been adequately dealt with by management; however, the company still trades at a ~58% discount to its 2017 highs compared to peers at (~30%).As a result, we would be buyers of Hydropothecary at current levels as we believe the company’s premium branding strategy and low-cost production should justify a multiple that is more in line with peers as the recent contamination issue is put further in the rear-view mirror while the company executes on a greenhouse expansion that we estimate could bring its total capacity to ~25,000 kg by the end of 2018.”

Bottomley thinks The Hydropothecary Corporation will generate Adjusted EBITDA of negative $3.6-million on revenue of $7.0-million in fiscal 2017. He expects those numbers will improve to EBITDA of positive $8.3-million on a topline of $30.0-million the following year.