HEXO (NASDAQ:HEXO), a company that produces, markets, and sells cannabis in Canada, has seen its shares decline 70% in 2022 to now trade at approximately 20 cents. How low can the shares go? In early January, they were trading at about 74 cents.

The company has reported its third-quarter (Q3) 2022 results. Investors should analyze these results to check if the company provides a good reason to invest in it. My analysis supports the idea that HEXO stock is far from being considered a bargain now.

Can HEXO Stock Bottom at 20 Cents?

HEXO’s chart shows that until the end of March 2022, there was an effort for a bounce and a trend reversal. The stock had moved to 50 cents and climbed back to 70 cents. However, by the end of March, the trend has been to the downside. The bounces are non-existent and the slide is a continuous one. At 60 cents, 50 cents, or even 40 cents and 30 cents, the bottom was not made. Why would a bottom occur at 20 cents?

When investors sell high-quality stocks like Apple (NASDAQ:AAPL) and send them to near 52-week lows, why would a stock like HEXO, that has nothing to do with quality, make a rebound? I believe the odds are zero.

Shares of HEXO have a 52-week range of $0.195 to $6.05. I believe a new 52-week low could be in the cards soon. The Federal Reserve just made the highest interest rate hike since 1994, 75 basis points. It is logical to expect for stocks to head lower.

Problems for HEXO

HEXO announced a revised agreement with Tilray Brands (NASDAQ:TLRY), mentioning that the market conditions are now dictating a reset to the agreement terms.

Tilray, with the revised agreement, will acquire a note from HT Investments MA LLC (HTI) for an outstanding balance of $185 million for “[89.2%] of the outstanding balance.” Additionally, there is a huge drop in the conversion price of the note, which will fall from 85 cents to 40 cents per share. In other words, Tilray is getting a stake in HEXO much cheaper now. Should the downtrend of HEXO stock continue, we could see another agreement made in favor of Tilray.

The Q3 2022 financial results for HEXO showed a 14% decline in net sales quarter-over-quarter. Additionally, it showed a widening year-over-year net loss of 146.63 million CAD compared to a net loss of 20.7 million CAD a year ago.

Poor Financial Strength and a Cash Burn Problem

HEXO stock has severe fundamental problems. The Piotroski F-Score of 3 is low, implying a very poor business operation. The company is losing money.

The Altman Z-score of negative 6.52 is in the distress zone. This figure implies the company could be looking at bankruptcy in the next two years. The firm has less than a year of cash runway. This is based on its free cash flow. Additionally, its shareholders have been substantially diluted in the past year, with total shares outstanding growing by 205.5%.

HEXO has launched an at-the-market offering “to issue and sell up to US$40,000,000 (or its CAD dollar equivalent) of common shares in the capital of the Company (the “Common Shares”) from treasury to the public, from time to time, at the Company’s discretion.”

This is bad news for shareholders. Given these risks, why should HEXO stock bottom at 20 cents? I believe there are very high changes of lower prices. Bottom fishing is too risky now.

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On the date of publication, Stavros Georgiadis, CFA  did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.