2023-09-24 04:01:12 ET
Summary
- MAPS is up year-to-date and up a lot since I wrote about it in early May, but it could go higher.
- The company has no debt and some cash, and its outlook has improved.
- I see ancillary companies, like MAPS, as poised to do better than MSOs if 280E does not vanish.
I first mentioned WM Technology ( MAPS ) to the Seeking Alpha readers in mid-January, suggesting it could be one of the best biotech and healthcare stocks in 2023. The stock then was $1.15, up about 14% year-to-date. Since then, the stock has rallied, while the SPDR S&P Biotech ETF( XBI ) has dropped 17%. The Health Care Select Sector SPDR ETF ( XLV ) has dropped 3.5%, and the New Cannabis Ventures Global Cannabis Stock Index has declined 11.2%. So, MAPS is doing better than peers.
At first, though, it did not. The stock set a new all-time low in April near $0.60, down about 40% year-to-date. I added a bunch to my model portfolio at the investment group that I run, and I also shared a piece near the beginning of May suggesting that investors pay attention and that it was nearly 9% of my cannabis model portfolio . It was then $0.71, so it is up a lot now.
The stock posted a 2023 high near the beginning of September, and I ended up exiting my position as it moved higher. Last week, I loaded up again at an average purchase price of $1.24, and it is currently 7.7% of the model portfolio. I am very long ancillary stocks, and MAPS is third-largest from that sub-sector. I recently wrote about a stock that I like more, Hydrofarm ( HYFM ), which is my largest ancillary position right now. The stock at that time in early September was $1.18 and is currently up a little from then but down year-to-date.
In this piece, I look at the financials for MAPS during the first half of 2023, provide an updated analyst outlook, assess the valuation, and examine the chart.
A Look at the MAPS 2023-H1
MAPS reported its Q2 in early August. Analysts, according to Sentieo, were expecting revenue of $48 million with adjusted EBITDA of $4 million. Revenue was higher than expected, falling 13% from a year earlier to $50.9 million. Adjusted EBITDA was also better than expected, at $10.2 million compared to a loss of $0.6 million a year earlier.
For the first half, revenue fell 15% to $98.9 million. The year-to-date adjusted EBITDA has been $17.4 million, up from -$1.5 million in the first half of 2022. The company has generated $4.1 million in cash flow from operations. It ended Q2 with no debt and $24.6 million in cash. It also reported tangible book value of $42.9 million.
The Outlook
Ahead of the Q2 report, analysts were expecting 2023 revenue to be $193 million with adjusted EBITDA of $19 million. For 2024, they were projecting revenue of $206 million with adjusted EBITDA growing to $25 million.
Now, analysts project that revenue in 2023 will decline 10% to $194 million with adjusted EBITDA higher at $24 million . For 2024, they are expecting revenue will increase 7% to $207 million with adjusted EBITDA of $27 million.
I am using 2025 estimates to form a target a year-out, and the analysts currently project that revenue will increase 9% to a record $225 million with adjusted EBITDA growing to $30 million, which is still below the 2021 level and a margin of 13.5%.
Not only do the margins seem to low, but I think that the company will do much better than expected if their customers are in better shape financially, which could be the case if the 280E tax goes away.
The Valuation
When I wrote in May, I shared a target for year-end based on 30X projected adjusted EBITDA for 2024, which was $3.26. In early August, ahead of the Q2 report, I shared with my subscribers a revised target of $1.94, based on 2X projected revenue for 2024. This is still possible in my view, but I am sharing today a target for a year out based on that same multiple of 2X projected revenue for the enterprise value. This calculation uses 75% of the 2025 estimate and 25% of the 2024 estimate.
The projected revenue two years out from now, then, is $220.5 million, which results in a targeted enterprise value of $441 million. I am using $20 million of net cash to get a $461 million market cap, which suggests a stock price of $2.04, up 65%. This would be 15X projected adjusted EBITDA, which seems achievable.
The Chart
The stock is way down from where it was ahead of the Q3 report two years ago:
Based on this longer term perspective, I see resistance near $2.25, which is above my one-year target. I see support near the lows from earlier this year at $0.60.
Looking at the one-year chart, the stock is off of the low, but it is also way lower than the peak a year ago:
I mentioned above that HYFM is a larger part of my model portfolio. My target in early September for HYFM a year out was $3.59, which is up 194%. This is a lot more potential upside than I see at MAPS, but, as I discussed in that piece: Hydrofarm has a lot of net debt. Here is the one-year chart comparing the two stocks:
Both bottomed out at similar levels from where they were in late September a year ago, and MAPS is leading the two stocks higher initially.
Conclusion
MAPS is working! I think it has much less downside risk than the MSOs if things don't play out with 280E going away, and my target may actually be too conservative. I do like it, but I prefer HYFM currently.
Investors may really like or dislike the to-be-named CEO. The current CEO, Doug Francis, is the Executive Chair, joined the company in 2009 and is very experienced. MAPS has an interim CFO too. So, the management team is a risk that investors should consider.
This stock used to be loved by cannabis investors, but there is not much sign of that positive sentiment these days. I think the stock can do better, and it could soar if its business were to pick up.
For further details see:
WM Technology Is A Good Cannabis Stock