With a Biden victory in the bag, it is clear sentiment toward cannabis stocks is turning positive again. After the U.S. presidential election results were in, the specter of cannabis being decriminalized at the federal level and thereby making it easier to operate south of the border, sent many previously struggling Canadian cannabis stocks soaring.
Cronos Group (CRON) enjoyed the industry wide uptick too, and shares are 37% so far this month.
But Cronos got an additional boost by releasing positive earnings results during the industry wide frenzy.
In Q3, the company reported revenue of $11.36 million, a 96.2% year-over-year uptick and coming in $0.15 million ahead of the forecast. GAAP EPS of $0.19 also came ahead of the estimates – by $0.25. But whilst gross margins of -14% improved on the -54% reported in Q3 last year, the figure still came in worse than the -2.6% consensus estimate and slipped back into negative territory after being 1% positive in Q2.
For Jeffries analyst Owen Bennett “the fact that Cronos still has a GM that is -ve is a concern.” In fact, despite the market’s positive reaction, it’s safe to say the analyst is not impressed by Cronos’ quarterly display.
“Same story again at Q3, little to inspire while we wait for evidence to validate its long-term strategy of building “iconic brands with disruptive IP,” the analyst remarked. “Canada sales remain small and with sequential growth trailing the industry, the company was forced to make downward price revisions in the Q, US disappointed, and adj. GM moved back to -ve territory. The big potential upside for us is US M&A with its enviable cash position. No visibility on this for now though.”
Cronos has been saying its long-term strategy involves “building iconic brands and creating and monetizing disruptive IP.” Bennett, however, claims there is “very little evidence to support this thesis.”
For Bennett to become more constructive on the stock, Cronos will need to pursue a M&A opportunity in the U.S. market. Being in the “rare position of having lots of cash” this is not out of the question, and Bennett believes Cronos could “be holding this money back for this purpose.”
However, until such a move becomes a reality, Bennett’s rating stays an Underperform (i.e. Sell). Unsurprisingly, his price target for CRON stands at C$5.60 ($4.30), implying a 41% downside from current levels. (To watch Bennett’s track record, click here)
The Street has only a slightly more upbeat take; With 2 Buys and Sells, each, and 1 Hold coalescing to a Hold consensus rating. Following the recent surge, the C$7.77 ($5.99) average price target implies 24% of downside in the year ahead. (See Cronos stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
