Canadian pot producer Canopy Growth (CGC) on Friday reported sales that missed expectations. Is there any reason to buy CGC stock now?
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The company reported net earnings of 390 million Canadian. But that was driven largely by other income totaling 581 million due to „non-cash fair value changes“ of 601 million Canadian. Canopy earned 84 cents a share Canadian, beating estimates for a loss of 26 cents a share.
Canopy said it remained „committed“ to „achieving positive Adjusted EBITDA by end of fiscal 2022.“
CGC stock has crept higher since the report. But analysts said lower-priced bud, pandemic-related difficulties and a short supply of higher-potency product hurt results.
Canopy has closed facilities and made aggressive cost cuts under the leadership of CEO David Klein, after his predecessor, a founder and co-CEO Bruce Linton, raced to expand domestically and internationally. But analysts are still looking for more after the changes at the top.
„The founder was fired two years ago, and we question what evidence the company has suggesting a better position than two years ago or evidence that significant improvements will take hold,“ Stifel analyst Andrew Carter said in a research note on Friday.
Meanwhile, lawmakers in the U.S. have advanced bills to decriminalize cannabis on a federal level. But what full U.S. legalization would mean for Canada’s pot industry is unclear.
Among other pieces, Canopy has an agreement in place to buy U.S. peer Acreage Holdings once pot is federally legalized in the nation. It also has an online CBD business in the U.S. But any legislation in the U.S. that benefits Canadian producers will also benefit their more-established stateside rivals.
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CGC Stock Fundamental Analysis: Still No Profits
CGC stock has a market cap of around $7.5 billion, making it the No. 1 Canadian marijuana stock by value on a big U.S. exchange.
However, the EPS Rating of Canopy Growth stock, a measure of profit growth on a scale of 1 to 99, is 55. Earnings growth is a hallmark of top stocks. Like other big marijuana stocks, Canopy has lost money after over-investing in expansion and production.
Wall Street expects Canopy Growth to break even — or eke out an adjusted per-share profit — by the end of the current fiscal year, which ends in March. But it expects losses to continue in the two fiscal years after. The stock also has a mediocre SMR Rating of C.
CGC stock has a Composite Rating of 25 out of a best-possible 99, according to MarketSmith. Investor’s Business Daily research shows the biggest stock winners typically have Composite Ratings in the 90s.
CGC Stock Technicals
IBD advises investors to buy stocks only after they set up in proper bases and rise above certain resistance levels, called buy points. But for Canopy, no such base pattern has formed, meaning no new buy point is in play.
Shares soared as high as 56.50 in February, but have wiped away most of those gains since. CGC stock is below its 50-day and 200-day lines.
Canopy’s relative strength line, which compares its stock performance with that of the S&P 500, has fallen since February.
The stock’s Accumulation/Distribution grade of C indicates an equal amount of buying and selling by institutional investors.
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Is Canopy Growth Stock A Buy?
Bottom line: Canopy Growth stock is not in a buy zone, so it isn’t a buy right now.
However, investors who accept the risks and are nonetheless eager to get into marijuana stocks could buy CGC stock the next time it moves into a buy zone. Generally, though, IBD’s research shows, investors would be better off looking for stocks with stronger fundamentals and that are closer to their highs.
Check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.
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