Our Marrone Bio Innovations Stock Prediction in 2019 (Buy or Sell?)
The marijuana industry is in the midst of a classic bubble, reminiscent of the dot.com boom (and bust) of the late 1990s. To be sure, “canna-business” represents one of the greatest investment opportunities you’ll see in your lifetime and certain marijuana stocks offer the potential for exponential gains.
However, investors often behave like lemmings and they’ve indiscriminately bid up the shares of even dubious cannabis companies that sport lousy balance sheets and weak operating results. Some pot plays will do quite well and they’ll make investors rich, but many others are excessively valued and they’ll go bust. It’s an old story. Beware the madness of crowds. And stick to quality.
Which brings us to Marrone Bio Innovations (NSDQ: MBII), a marijuana penny stock. Marrone does have a history of generating modest revenue, so there’s a real business here.
The question is just how much of a business and if it is likely to grow.
We’ll take a look at the pros and cons of the company, to see what 2019 might bring its shareholders.
What Is Marrone Bio Innovations?
To make a Marrone Bio Innovations stock prediction, we first must understand what this company does.
With a market cap of $150.5 million, Marrone Bio Innovations provides biologically based plant health products and pest management for the water and agricultural markets. As such, it’s an indirect marijuana play.
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Marrone sells a whole bunch of “cides.” That is, herbicides, algaecides, nematicides, fungicides, insecticides, molluscicides, plant growth and stress regulators, and even water treatment products. (The suffix “cide” is Latin for killer, or act of killing.)
Marrone’s biggest products are Grandevo, a bioinsecticide for insect and mite control, and Regalia, a plant extract-based fungicidal biopesticide. The firm provides Zequanox, a biomolluscicide, and Venerate, a bioinsecticide, which controls chewing and sucking insects and mites.
Marrone Bio also produces a plant sun protectant called Haven, and Majestene, which is a bionematicide.
Unlike many marijuana plays, both direct and indirect, this company has generated tangible revenue. Marrone posted $9.1 million in revenue in FY14, $9.8 million in FY15, $14 million in FY16, $18.1 million in FY17, and slowed back down to $18.8 million in the past year.
Alas, Marrone also has posted net losses every year, although those losses are getting smaller. Losses totaling $51.6 million in FY14 shrank to $31 million in FY17, and the red ink is down to about $20 million over the past year.
The net operational cash burn also has come down, from $36 million in FY14 to $25.3 million in the past year.
How Has Marrone Bio Innovations Stock Performed?
- Over the past year, MBII shares have gained 13% whereas the S&P 500 has lost 6%.
- Over the past two years, MBII shares have lost 41% whereas the S&P 500 has gained 14%.
- Over the past five years, MBII shares have lost 92% and the S&P 500 has gained 41%.
How Has Marrone Bio Innovations Stock Performed in 2017/2018?
- In 2017, Marrone Bio Innovations shares lost 52% whereas the S&P 500 gained 19%.
- In 2018, Marrone Bio Innovations shares gained 13% whereas the S&P 500 lost 6%.
Who Are Marrone Bio Rivals?
Scotts Miracle-Gro (NYSE: SMG)
Marrone must feel very confident to take on Scotts, the 800-pound gorilla of agriculture. Scotts has an entire brand called Ortho that is devoted to pesticides.
Not only that, SMG has shown its sensitivity to environmental concerns by eliminating the use of three molecules in a certain type of pesticide that has been linked to killing bees.
Through its cannabis subsidiary Hawthorne Gardening, Scotts is starting to look into pesticides for cannabis. The company has been talking with the U.S. Environmental Protection Agency (EPA) about which pesticide products could be used on cannabis.
As if competition from Scotts weren’t enough, Marrone also has to navigate a market that has Syngenta in it. The $40 billion Swiss company develops herbicides, fungicides and insecticides for all major crops, including corn, cereals, fruits and vegetables, and also offers pesticides for homes and gardens.
Sygenta is the largest producer of pesticides in the world and was purchased in a $43 billion all-cash transaction by ChemChina, a state-owned giant based in Beijing.
BASF (OTC: BASFY)
This $61 billion German firm has an entire Agricultural Solutions division, one of five chemical divisions in the company, and is almost entirely devoted to pesticides. BASF mostly targets commercial users, with 2017 sales of $18 billion.
While most of the other gigantic pesticide players are either acquiring competitors or being bought out, BASF had been on the sidelines until recently. It scooped up a massive seed business from Bayer (OTC: BAYRY) for about $8.5 billion late last year.
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Marrone Bio’s approach to pest management is based on the idea that it doesn’t need to use harmful chemicals. A powerful environmental lobby has emerged to oppose chemicals in agriculture, a “green” sentiment that has many adherents in the marijuana sector.
Echoing the entire organics movement, the company is leveraging the widespread fear of chemicals to push its biologically based products. There’s a growing market for this approach.
The company’s 10-K describes its products:
“Bio-based pest management products include biopesticides, as well as minerals such as copper and sulfur. The EPA registers biopesticides in two major categories: (i) microbial pesticides, which contain a microorganism such as a bacterium or fungus as the active ingredient and (ii) biochemical pesticides, which are naturally occurring substances such as insect sex pheromones, certain plant extracts and fatty acids.
Biostimulants, which are not registered by the EPA absent additional pest control usages, are microorganisms or natural substances derived from microorganisms or plants that growers use to reduce plant stress, stimulate plant physiology to increase yield, manage pest resistance and reduce chemical residues.”
If one assumes that Marrone’s products work, and that people are even willing to pay a slight premium not to deal with chemicals, then the company’s future rests on its ability to market these concepts. The ability to market depends on access to capital.
The company recently issued common stock to raise additional capital and now has about $20 million of cash on the balance sheet. As revenue increases and costs slowly fall into line, net losses have been decreasing.
Marrone’s net loss of almost $24 million through the first nine months of 2017 was cut in half to just over $12 million in the first nine months of 2018. The company is trading at about eight times revenue.
Here’s a video that provides more details about Marrone Bio Innovations and its attempts to attract farmers of all types with its organic approach:
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Marrone stock currently hovers at $1.38 per share. So keep in mind, it’s a penny stock, with all of the risks that entails.
The company must grapple with several challenges. The first is that it will have to ramp up its marketing. Depending on where you live, you may hear radio advertisements for “all natural” pest control. The company’s ability to market itself as a non-chemical alternative is where it will live or die.
Secondly, to market its products, the company will need greater financial wherewithal. That means it will be compelled to continually raise equity and dilute shareholders, or take on additional debt.
The marijuana boom is a genuine investment opportunity, but only if you separate the hype from reality. Problem is, the cannabis “green rush” is generating clouded judgment among investors, especially when it comes to penny stocks.
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The fact that Marrone Bio Innovations is still showing a loss, and is trading at a multiple of revenue that is really quite unreasonable compared to other established companies, is why we deem the stock expensive and overpriced.
Overall Marrone Bio Innovations Forecast and Prediction for 2019
So what is our MBII stock prediction for 2019?
The stock has experienced a wider trading range than most of the other penny stocks we’ve been covering in the marijuana space. Its 52-week range has been between $0.99 and $3.39, although the latter price represented a spike that had more to do with the overall industry than the company itself.
We think the stock has the potential to waver in a range between $1.10 and $1.75 this year, entirely dependent on its earnings releases.
That said, investors should be extremely cautious about adding this stock to their portfolio. It’s only for aggressive speculators.