As more states relax the regulation for the recreational use of marijuana investors are eager to look for opportunities in this budding sector. But we should look closely at the reality of using marijuana for medical purposes and other products. Companies related to the growing or distribution of cannabis products do have positive prospects for year, but there will most likely be many examples of failures as well. It’s an investor’s job to figure out which businesses will thrive and which wont.

The general expectation in the marketplace shows that the marijuana companies have to deliver. But this will be very difficult for INSYS Therapeutics Inc (Nasdaq: INSY) to pull off. INSYS develops and commercializes supportive care products targeting the oncology space. The company manufactures marijuana based products, and sublingual spray drug delivery technology such as Subsys, which is a fentanyl formulation. It conducts its business in the U.S. and European markets. Insys Therapeutics is based out of Chandler, AZ and has about 423 employees.

From a fundamental valuation point of view, Insys looks to be very overbought. The company is currently not profitable with an earnings per share of -$2.55, while the industry average is +$2.82. For the fiscal year of 2017 it is estimated Insys will lose about $0.41 per share. Its return on equity of -81.20% is also worse than the biotechnology industry average. Furthermore, its top line sales have been mostly flat over the past few years, while its operating income experienced a sharp decline towards the end of 2016. The drop in income could be attributed to more spending on research and development. However that investment hasn’t paid off yet for Insys. According to analysts, the company probably wouldn’t be profitable again until 2020. Based on 5 stock analysts covering Insys Therapeutics, the average 12 month price target is $9.80. The current price of the stock as of writing this post is $9.75 per share. So there is basically no gains to be expected from this stock for the next year. Any potential gain towards the upside would be purely based on speculation since the company isn’t expected to make any profits this year.

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