Canopy Growth: The Bearish Trend Is Not Expected to Relieve

CGC stock - Canopy Growth: The Bearish Trend Is Not Expected to Relieve

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Canopy Growth Corporation (NASDAQ:CGC) has been a terrible investment in the past two years. CGC stock lost more than 80% of its market capitalization since its peak of $42.93 per share in February 2021. Interest in the medical and recreational cannabis giant rose in the past years. Canopy diversified its cannabis product offering in the past few quarters, trying to sweeten its growth prospects and find profitable markets. Nevertheless, the medical cannabis specialist is still struggling to deliver a profit. With top-line growth decelerating in the next quarter, CGC’s consolidation path is unlikely to ricochet in the near-term.

CGC’s financials have slightly improved in the third quarter (Q3) of the fiscal year 2022. Net sales advanced moderately, up 7.6% quarter-over-quarter to CAD 141 million, but operating margins deteriorated significantly over the period, coming in at negative 35.4% compared to 18.8% in the Q2 FY2022. In addition, the consensus of analysts anticipates a 4.3% decrease of CGC’s top-line in the Q4 FY2022 to CAD 135 million and a marginal advance in revenues in Q1 FY2023, up 3% quarter-over-quarter to CAD 139 million.

The cannabis giant has been running on investors’ capital for a couple of years now. With profit nowhere to be seen in the next two years, additional headwinds will hit the stock. Analysts expect net losses to accelerate steeply in the next two quarters, attaining CAD  negative 111 million in Q4 FY2022 and an enormous CAD  negative 989 million in the Q1 FY 2023. With this poor forward guidance, CGC will soon need to raise additional capital or issue debt to continue its operations, which is not a positive development for CGC’s stock price. Meanwhile, analysts remain optimistic about CGC’s equity story, providing an average target price of $7.98 per share, representing an upside of 17% from today’s price.

The company’s current price seems to be fairly valued, exchanging at a forward price-to-book ratio of 1.08x. Nevertheless, aggressive investors considering a position on this profitless business should not underestimate the bearish risks and might better look for more attractive investment opportunities.

On the date of publication, Cristian Docan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Cristian Docan, a contributor for InvestorPlace.com, has been writing stock market-related articles for Seeking Alpha, Stocknews, and Wealthpop since 2017. He takes a fundamental and technical approach in evaluating stocks for readers, focusing on momentum investing and macro-driven strategies.


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