The Big Test for Sugarmade Inc (OTCMKTS:SGMD)

The Big Test for Sugarmade Inc (OTCMKTS:SGMD)

In March, after running BudCars for a month and watching the growth curve in full effect, Sugarmade Inc (OTCMKTS:SGMD) management gave guidance about its new subsidiary, suggesting that it might be capable of as much as $15 million in annualized revenues.

In the course of the development of any “stock story” in the market, we always reach the moment where we must come to terms with how credible a company is in its own forecasting.

What Sort is SGMD?

That narrative always tips in one of two directions: 1. They overpromise and underdeliver, or 2. They sandbag and blow it out.

So far, SGMD appears far more aligned toward option number two than option number one – they undershoot when they put out guidance, and then they leap gracefully over the bar.

With that in mind, the company just provided updated revenue expectations for July and calendar Q3 BudCars performance. According to the release, based on robust growth and underlying data trends witnessed in May and June, and continued very strong performance underway so far in July, management now forecasts continued month-over-month sequential sales growth of 30% in July and August, positioning the company for July sales of at least $650K, and a pace lined up to close out September with annualized BudCars revenues running at or above $11 million.

Hence, the company’s most recent data covering its June performance suggests closer to $25-30 million in annualized revenue pace by year end than $15 million. In other words, either the company was being conservative in March or things have turned out to be much more promising than expected, or possibly both.

In any case, Sugarmade Inc (OTCMKTS:SGMD) put out new guidance focused on Q3 performance. If you do the math from the numbers given, we are looking at gargantuan m/m and q/q topline and gross profit growth continuing in July and beyond as BudCars continues to ramp higher.

Jimmy Chan, CEO of Sugarmade, noted, “We believe we have enough visibility and enough data in hand to forecast that we will continue to see extremely robust growth in July and August. Many of the trends we saw come together in June to drive our performance remain in place and suggest new records across many metrics are likely this month as well.”

Drilling Down

According to the company’s most recent release, BudCars saw improvement in every major metric during June, as covered in detail in the Company’s July 1 release. Mutually reinforcing trends in increasing new customers, strong repeat business, increasing orders per customer per period, and increasing ticket sizes continue to define performance thus far in July, suggesting a high degree of confidence in continued 30% sequential monthly topline growth and the likelihood that the Company will close out its calendar Q3 with extremely strong metrics in place heading into year-end.

In other words, the headline data points are further supported by a deeper data analysis, with the underlying trends placing this outperformance on a firm foundation, or so it would appear from the company’s account in its recent communications.

We would also point out that SGMD management has been strategizing with a long-term vision in mind, apparently, including strategic expansion into new markets and margin expansion through a clear verticalization agenda.

From its release, “In addition, Sugarmade continues to focus on further bolstering future top and bottom-line growth through aggressive expansion and verticalization plans, including the upcoming opening of its BudCars LA hub and the establishment of inhouse cultivation and product manufacturing operations at its new 5,000 square-foot indoor premium cannabis cultivation facility located in very close proximity to its Sacramento BudCars hub.”

Anyone who spends any time researching the global legal cannabis market knows that LA is ground zero. This is the promised land for pot producers.

Pair that with the ability to source its own raw supply, and you have a material basis for potential upside here: More sales on widening margins in more markets.

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Published at Thu, 09 Jul 2020 05:14:55 +0000