Valens (VLNS) (TSE: VLNS) recently reported earnings for its second quarter of Fiscal Year 2022. Earnings per share came in at -C$2.13, which was below analysts’ consensus estimate of -C$0.18. In the past nine quarters, the company has beat estimates only one time.
In addition, sales increased 27.9% year-over-year, with revenue hitting C$24 million compared to C$18.8 million. The revenue increase was primarily driven by strength in the company’s U.S. Green Roads CBD, International, and Business-to-Business segments.
However, gross profit fell substantially, which means that the company saw operating deleverage since it decreased while revenue increased. Indeed, gross profit was actually -C$10.7 million compared to C$4.14 million in the comparable quarter of 2021.
This basically implies that the company was structurally unprofitable this quarter and that products were being sold at a loss. However, the company reports adjusted gross profit, which came in at C$3.4 million, flat compared to last year.
Valens’ Investor Sentiment is Negative
The sentiment among TipRanks investors is currently negative. Out of the 543,218 portfolios tracked by TipRanks, less than 0.1% hold VLNS. In addition, the average portfolio weighting allocated toward VLNS among those who do have a position is 2.54%. This means that investors don’t view the company as a core holding.
Moreover, in the last 30 days, 0.3% of those holding the stock decreased their positions. This number has jumped to 0.8% over the last seven days. Because of this, the stock’s sentiment is below the sector average, as demonstrated in the following image:
Analysts Currently See Strong Upside Potential
Valens has a Moderate Buy consensus rating based on two Buys assigned in the past three months. The average VLNS price target of US$2.89 implies 338% upside potential.
Final Thoughts: There Likely are Better Opportunities Elsewhere
Valens saw a mixed quarter, as revenue saw strong growth while a structurally unprofitable quarter caused earnings to come in worse than expected. Nevertheless, the two analysts covering the stock in the past three months appear to have a favorable view of the company.
However, in my view, the current market is offering better opportunities elsewhere, with profitable companies that have a competitive advantage trading at steep discounts. As a result, investors may be better off looking for more established companies.