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Zoetic – another corporate deal in the US shows what a complete joke its share price still is

By Tom Winnifrith | Tuesday 18 May 2021

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Another day and another merger occurs in US cannabis. This time it is Hexo which is to acquire 48North Cannabis Corp in an all share $50 million deal so what is the read-across for the fraud Zoetic (ZOE) and its valuation? Look away now bulls… it is dire.

Yesterday I explained in full detail why, despite delivering sales of $1 million in the first two weeks of May, Zoetic did not have a chance of delivering annual sales of $24 million. There is more chance of me shagging not only Cheryl Cole but also the entire Dallas Cowboys Cheerleading squad than Zoetic has of coming anywhere close to $24 million in annual sales. What we saw yesterday was the result of trial stocking up. It is a one off.

But let us humour the bulls and say that Zoetic does deliver sales of $24 million so what would it be worth?

48 North has reported sales of $6.27 and $6.02 million for the last two quarters so its annualised sales are $24.5 million. In other words, it is being bought for just a smidgeon over two times sales which is actually about 10% higher than the last two US corporate deals but then again this is all-share. The read-across to Zoetic is that it is worth, based on our ludicrously generous assumption of its annualised sales, $49 million or 16.2p per share.

So on the most wildly optimistic basis, the shares, at 61.25p, have 74% to fall!  But, of course, once we see sales based not on an initial stock up but on an underlying run rate, we will realise that the $24 million number was sheer fantasy and so even 16.2p will seem like a grotesque over-valuation.

Natch, the bulls will have all sorts of excuses but the hard factual data is clear. Zoetic’s shares are going to collapse and anyone holding should brace themselves for huge losses.

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