Last year, the marijuana industry broke down more than a dozen barriers. We witnessed an industrialized country legalize recreational pot, saw the U.S. Food and Drug Administration approve the very first cannabis-derived drug, and watched as numerous marijuana stocks uplisted from the over-the-counter exchange to either the New York Stock Exchange or Nasdaq.
But after a year of promises, 2019 and beyond will feature a new focus. With the industry blossoming under the umbrella of legalization through much of North America and Europe, it’s now up to pot stocks to deliver the green. In other words, operating results actually matter now.
Which pot growers have the lowest forward price-to-sales ratio?
Of course, most marijuana stocks are going to get a pass on profitability for perhaps a year or two as they ramp up growing and processing operations. However, revenue figures — and, more specifically, future price-to-sales ratios — will absolutely be coming into focus. Pot stocks with low forward price-to-sales ratios could turn out to be hidden gems, while those trading at high future sales multiples may be worth avoiding.
With this in mind, I set out to take a look at the forward price-to-sales ratios (i.e., current market cap relative to Wall Street’s consensus 2020 sales estimate) of the 12 largest marijuana producers in Canada. Two — Aleafia Health and Emerald Health Therapeutics — were eliminated for insufficient coverage from Wall Street. That left 10 of the largest Canadian marijuana growers that I could rank based on relative cheapness to their 2020 sales figures. Here’s what the data revealed:
- Auxly Cannabis Group (NASDAQOTH:CBWTF): price-to-sales ratio of 1.93
- Aphria (NYSE:APHA): 3.04
- The Green Organic Dutchman: 3.24
- CannTrust Holdings (NYSE:CTST): 4.50
- OrganiGram Holdings (NASDAQOTH:OGRMF): 6.33
- HEXO: 6.84
- Tilray: 12.92
- Aurora Cannabis: 14.92
- Canopy Growth (NYSE:CGC): 29.16
- Cronos Group (NASDAQ:CRON): 38.65
The biggest “values” have some of the largest question marks
The first thing that probably stands out is that there are some insanely attractive values in the marijuana industry, based on 2020 sales forecasts and market cap. Unfortunately, the pot stocks that look to be the deepest discounts are potentially damaged goods.
For example, Aphria looks…
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