April’s consumer price index increased 8.3% year-over-year, beating the 8.1% estimate. Though the rate is lower than 8.5% in the prior month, the higher-than-expected inflation is expected to push the Fed to tighten its monetary policy further. This raises concerns that the economy may slip into recession.
The uncertainties surrounding the economy and the stock market have dampened investor sentiment. Concerns over the broader equity market and persistent issues in the cannabis sector have driven a significant price decline by stocks in this space. Investors’ tepid interest in cannabis stocks is evident in the Global X Cannabis ETF’s (POTX) 30.3% decline over the past month. Earlier this month, Stifel analyst W. Andrew Carter confirmed his firm’s negative bias regarding the cannabis market.
Based on their weak growth prospects, Stifel analysts have cut their price targets for Aurora Cannabis Inc. (ACB) and Canopy Growth Corporation (CGC). Also, our proprietary rating system has rated these stocks as Strong Sell. So, these stocks could witness further price declines in the near term.
Aurora Cannabis Inc. (ACB)
Headquartered in Edmonton, Canada, ACB produces, distributes, and sells cannabis and cannabis derivative products in Canada and internationally. It also assists facility engineering and design, cannabis breeding, research, production, derivatives, product development, wholesale, and retail distribution activities.
On May 2, 2022, Stifel Analysts cut ACB’s price target to CAD3.00 from CAD3.50.
ACB’s total net revenue has decreased 10.5% year-over-year to CAD60.59 million ($46.55 million) for its fiscal 2022 quarter, ended Dec.31, 2021. Its gross profit came in at CAD5.58 million ($4.29 million), down 54.3% year-over-year. Also, its total assets were CAD2.49 billion ($1.91 billion) for the period ended Dec.31, 2021, compared to CAD2.60 billion ($2 billion) for the period ended June 30, 2021.
In terms of forward EV/S, ACB’s 3.58x is higher than the 3.43x industry average.
ACB’s revenue is expected to decline 5.7% to $181.78 million in its fiscal 2022. It missed EPS estimates in two of the four trailing quarters. And over the past six months, ACB has declined 69.8% in price to close yesterday’s trading session at $2.29.
ACB’s POWR Ratings reflect its poor prospects. It has an overall F rating, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
The stock has an F grade for Momentum and Sentiment and a D grade for Value, Stability, and Quality. Click here to access the additional POWR Ratings for ACB (Growth). ACB is ranked #166 of 167 stocks in the F-rated Medical - Pharmaceuticals industry.
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Canopy Growth Corporation (CGC)
Headquartered in Smiths Falls, Canada, CGC produces, distributes, and sells cannabis and hemp-based products for recreational and medical purposes, primarily in Canada, the United States, and Germany. It operates through two segments–Global Cannabis and Other Consumer Products.
On May 2, 2022, Stifel Analysts cut CGC’s price target to CAD6 from CAD7.50.
CGC’s revenue has decreased 8.8% year-over-year to CAD155.02 million ($118.93 million) for the third quarter, ended Dec. 31, 2021. Its cash and cash equivalents came in at CAD615.15 million ($471.91 million) for the period ended Dec. 31, 2021, compared to CAD1.15 billion ($885.79 million) for the period ended March 31, 2021. Furthermore, its total assets came in at CAD6.31 billion ($4.84 billion), compared to CAD6.82 billion ($5.23 billion).
In terms of forward EV/S, CGC’s 5.63x is higher than the 3.43x industry average. And its 4.64x forward P/S is also higher than the 4.02x industry average.
CGC’s EPS is estimated to decrease 265.8% in 2023. Its EPS is estimated to remain negative in 2023. Over the past six months, the stock has declined 63.2% in price to close yesterday’s session at $4.98.
CGC has an overall F grade, which equates to a Strong Sell in our POWR Ratings system. It has an F grade for Value, Momentum, and Sentiment and a D grade for Stability and Quality. Click here to access all the CGC ratings (Growth). CGC is ranked #162 in the Medical - Pharmaceuticals industry.
ACB shares were trading at $2.43 per share on Thursday afternoon, up $0.14 (+6.11%). Year-to-date, ACB has declined -55.08%, versus a -17.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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