Reversal Seems Due By TipRanks
Canopy Growth Corporation (NASDAQ:) has been an underperformer over the past 12 months.
The stock may be able to recover now that cannabis is legalized in the United States. (See CGC stock charts on TipRanks)
Additionally, the company has undertaken some significant business growth initiatives, which are likely to deliver results in the coming quarters. Canopy Growth has my full support.
Mixed Results, Positive Outlook
For Q1 2022, Canopy Growth reported year-over-year revenue growth of 23% to $136 million. The company’s adjusted EBITDA loss also narrowed to $64 million, as compared to $93 million a year ago.
The company also suffered a $186 million loss in free cash flow. Canopy Growth’s EBITDA losses are now less severe, but cash burn is still a concern. The company however has projected a positive adjusted EBITDA for the year 2022. CGC stock could see a sharp decline if losses keep falling in the next quarters.
The company’s product portfolio is one reason why it can produce better results. Canopy introduced more than 50 new SKUs in Q1 2022. The company plans to launch more than 100 new SKUs over the coming quarters.
It is important to remember that value-added products are the company’s main focus. Beverages, gummies and other edibles are all included. It is possible to see significant improvements in EBITDA margin if these SKUs are able to generate incremental revenue growth.
It’s worth noting that the cannabis industry is in a phase of consolidation. Canopy Growth appears well placed to take advantage of opportunistic opportunities. Canopy Growth had $2.1 million in cash and equivalents as of June 30.
In April, Canopy completed the acquisition of Ace Valley, a premium cannabis brand that complements Canopy’s existing portfolio. Canopy will be able to further increase its presence in Canada thanks to the cost synergies and acquisition.
Canopy Growth completed in June the purchase of Supreme Cannabis. The acquisition will add premium brands 7ACRES, and 7ACRES Craft Collective to CGC’s portfolio.
The acquisition will likely result in cost synergies worth $30 million over the next 2 years.
Constellation Brands (NYSE) holds a 38% stake in Canopy Growth. This gives the company financial support.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, CGC stock comes in as a Hold, with three Buys, nine Holds, and one Sell assigned in the past three months.
CGC stock has a $26.13 average price target, which translates into 76.7% upside potential compared to current levels.
Grand View Research estimates that the global cannabis market size is likely to be worth $70.6 billion by 2028. The market is in an early stage of development.
Canopy Growth seems to be among the players that’s positioned to survive the cash burn, and grow in the coming years. Once cannabis is legalized at the federal level, Canopy’s top-line growth is likely to accelerate.
Disclosure: At the time of publication, Faisal Humayun did not have a position in any of the securities mentioned in this article
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