This Is Why CV Sciences Inc (OTCMKTS: CVSI) Is Rated As A Buy

CV Sciences Inc (OTCMKTS: CVSI) has lost its spark after a massive surge in the first quarter. The stock is back to where it started the year at, on the upswing losing its momentum. Price action activity has so far remained subdued in a tight $6.30 to $4.20 trading range.

CV Sciences Price Analysis

While the subdued market activity is a point of concern, CV Sciences has continued to fire on all angles when it comes to operational efficiency. Double-digit revenue growth supplemented by gross margin expansion are some of the developments that affirm a company doing well when it comes to execution of its growth strategy.

The Company has also expanded its distribution network into Food, Drug, and Mass channels as the race for accelerated sales growth continues to heat up. Amidst the developments, the stock has continued to edge lower as investors trust continue to edge lower.

The recent plunge has exposed the stock to a critical support at the $4.20 level. Above the critical support level, CV Sciences remains supported for further upside action as has been the case in the recent past. Conversely, a breach of the support level could result in the stock plunging further as part of the emerging downtrend.

A rally followed by a close above the $6.30 level, on the other hand, could open the door for the stock to power higher in continuation of the long-term downtrend. As it stands, CV Sciences is likely to bounce off the critical support level, as recent developments continue to strengthen investor sentiments in the stock.

What Does CV Sciences Do?

CV Sciences operates through two segments of consumer products and specialty pharmaceuticals. The Consumer segment markets and sells consumer products containing hemp-based cannabidiol oil. The Specialty segment, on the other hand, is involved in the development of cannabinoids for the treatment of a range of medical indications.

Buy Rating Boost

Amidst the underperformance in the stock market, CV Sciences continues to elicit interest from equity research firms. Analysts from Roth Capital have initiated coverage of the stock with a ‘buy’ rating. The brokerage firm has a $9 share price target on the stock.

The bullish rating does not come as a surprise as a flurry of positive developments continues to underscore the Company’s long-term prospects. For starters, the Company is fresh from reporting an 85% increase in first-quarter sales that came in at $14.9 million.

The increase underscored the Company’s continued organic expansion into new sales channels. CV Sciences has made its products available in Food Drug and mass channels as part of an effort of diversifying its sales channels. The expansion drive has since seen the Company’s retail store, count increase to 3,308 stores nationwide.

Since the passage of the, 2018 Farm Bill in the U.S, CV Sciences has continued to register a significant interest in its hemp derived CBD category across retailers and channels. According to the CEO, Joseph Dowling, CVSI continues to experience growth in its hemp drug development program as well.

“Our drug development program remains on track, and we continue to anticipate filing an Investigational New Drug application in late 2019 / early 2020. We have the brand, the people and the unique business model focused on both consumer products and drug development to maximize our opportunity in the rapidly growing hemp CBD industry,” said Mr. Dowling.

According to the Chief Executive, CVSI is well positioned to capitalize on both growing consumer demand and benefit of enhanced regulation with the development of the hemp-based CBD market.

Headwinds

CVSI poor show in the market could be attributed to growing concerns about the widening net loss. In the first quarter, the Company generated a $9.4 million operating net loss compared to a $0.7 million operating income, generated a year ago.

In defense of the wider than expected net loss, management insists it was as a result of additional stock-based compensation and payroll expense associated with the retirement of the former CEO.

Bottom Line

While CV Sciences is trending lower, one cannot dispute the fact that its long-term prospects and growth metrics remain intact, given the developments in the CBD market. Robust revenue growth is a milestone that underscores a company in a phase of growth.

Roth Capital initiating coverage of the stock with a buy rating is another development that underscores the Company’s long-term prospects when it comes to shareholder value generation. The pullback lower in our view presents an opportunity to buy the stock at a discount.

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Disclosure: We have no position in CVSI and have not been compensated for this article.