Smith Falls, Canada-based Canopy Growth Corporation (CGC - Get Rating) is a global leader in cannabis and cannabinoid-based consumer products. Recently, the company announced the expansion of its Ace Valley brand portfolio, bringing two new beverage and hard candy forms to market. In addition, last month, it launched the next phase of the Tweed brand with the launch of new products, formats, and a revamp of the brand’s look and feel.

However, the stock has plunged 79.2% in price over the past year and 39.2% over the past three months to close yesterday’s trading session at $8.75. It is currently trading 78.7% below its 52-week high of $41.15.

Furthermore, in December, CGC agreed to divest its subsidiary company, C3 Cannabinoid Compound Company GmbH, to Dermapharm Holding SE, a European pharmaceutical company. The move is intended to further CGC’s transformation into a CPG-style company. However, it may have a negative impact on revenue.

Here is what could shape CGC’s performance in the near term:

Inadequate Financials

CGC’s revenue decreased 8.8% year-over-year to $155.02 million for the third quarter, ended Dec. 31, 2021. Its operating loss came in at $149.96 million. The company reported a $108.93 million net loss of, while its loss per share amounted to $0.28. In addition, its net cash used in operating activities came in at $419.13 million, representing a 13.9% increase for the nine months ended Dec. 31, 2021.

Weak Profitability

CGC’s 0.09% trailing-12-months asset turnover ratio is 74.2% lower than the 0.34% industry average. Also, its ROA, gross profit, and net income margins are negative 6.8%, 4.3%, and 76.8%, respectively. Furthermore, its trailing-12-month cash from operations stood at a negative $408.81 million.

POWR Ratings Reflect Uncertainty

CGC has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CGC has a D grade for Quality and Stability. The company’s weak financials and poor profitability are consistent with the Quality grade. In addition, the stock beta of 1.93 is in sync with the Stability grade.

Of the 180 stocks in the F-rated Medical – Pharmaceuticals industry, CGC is ranked #175.

Beyond what I have stated above, you can view CGC ratings for Value, Growth, Sentiment, and Momentum here.

Bottom Line

Despite CGC’s recent advancements, the company faces intense competition in the cannabis market. In addition, analysts expect its EPS to decline 128.8% in the next quarter (ending June 2022) and remain negative. Furthermore, given the company’s weak profit margin, we think the stock is best avoided now.

How Does Canopy Growth Corporation (CGC) Stack Up Against its Peers?

While CGC has an overall F rating, one might want to consider its industry peers, Merck & Co. Inc. (MRK - Get Rating), Johnson & Johnson (JNJ - Get Rating), and Novartis AG (NVS - Get Rating), which have an overall A (Strong Buy) rating.

Click here to checkout our Healthcare Sector Report for 2022

CGC shares were trading at $8.65 per share on Thursday morning, down $0.10 (-1.14%). Year-to-date, CGC has declined -0.92%, versus a -6.69% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

More Resources for the Stocks in this Article