Village Farms stock is very undervalued, this analyst says

Its third quarter results are in the books and Beacon Securities analyst Doug Cooper still thinks there is money to be made on Village Farms (Village Farms Stock Quote, Chart, News, Analysts, Financials NASDAQ:VFF).

On November 7, VFF reported its Q3, 2024 results. The company posted EBITDA of $5.3-million on revenue of $83.4-million, a topline that was up 20% year-over-year.

“Strong performance in our Fresh Produce business, continued growth in Canadian Cannabis and a doubling of International Medicinal Cannabis Sales drove 20% year-over-year growth in consolidated sales, with both positive Adjusted EBITDA and cash flow from operations during the third quarter,” CEO Michael DeGiglio said. “Our Canadian Cannabis business continues to deliver strong growth with leading market share as we realized revenue growth in all sales channels and positive EBITDA and operating cash flow. We were once again the fastest growing producer in Canada over the last year in terms of market share and, for the first time ever, were number one in Quebec, making us the top producer in Canada’s two most populus provinces. Out-of-stocks in some cultivars after a strong first half impacted sales growth in the quarter, and non-brand-spec sales that converted inventory to cash impacted gross margin. Gross margin, excluding non-brand-spec sales returned to our target range of 30 to 40%.”

Cooper says the company continues to gain market share.

“VFF’s Canadian cannabis results once again pointed to significant share gains. While the industry sales were down ~1% y/y, VFF’s branded sales were +20% to C$37.2 million,” he noted. “Furthermore, the company noted that its sales could have been stronger if not for inventory shortages of some of its key strains. These gains are in sharp contrast to other major industry participants who saw material revenue declines in the Canadian adult-use market including Tilray (TLRY – US, NR), down 16%, Aurora Cannabis (ACB – T, NR), down 13%, Canopy Growth (WEED – T, NR), down 22% and Decibel (DB – T, NR), down 19%. We have said for years that VFF would ultimately dominate the Canadian cannabis retail landscape. Both its scale and growing experience are enabling it to be the industry’s lowcost producer of high-quality product. In our opinion, we are clearly seeing this trend play out in real time. VFF noted that it is the fastest growing LP in the country, has the #2 position across the country, is #1 in flower and is #1 in Quebec and Ontario In addition, it noted that within its international segment, where sales were up materially y/y to C$1.9 million, its strains were #1 and #3 in Germany (sold through distribution partners). We think this bodes well for if/when VFF starts to sell more direct in that market.”

In a research update to clients November 11, Cooper maintained his “Buy” rating and price target of $3.00 on VFF, implying a return of 275% at the time of publication.

The analyst thinks the company will post Adjusted EBITDA of (US) $7.8-million on revenue of $329.8-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $22.6-million on a topline of $351.1-million in fiscal 2025.