Investors have been used to paying big premiums to own marijuana stocks in the past. However, with pot stocks falling sharply over the past several months, valuations have come down sharply. The three stocks listed below have all declined by more than 50% since July 1. However, let’s take a look to see if they’ve become good buys today or if there is still too much risk to invest in them…
OrganiGram Holdings (NASDAQ:OGI) lost nearly 60% of its market cap in the past six months. The cannabis producer released its year-end results in November, which showed OrganiGram’s net revenue was $80.4 million Canadian dollars for the 2019 fiscal year, more than six times the CA$12.4 million it posted in the prior year. Unfortunately, amid all the growth, the company still incurred a loss of CA$9.5 million in fiscal 2019, compared to a profit of CA$22.1 million a year ago.
However, things could improve for the company as OrganiGram expects to be a big player in the cannabis edibles market, especially when it comes to chocolate. On Dec. 13, the company announced Health Canada approved 16 additional rooms for cannabis cultivation. OrganiGram now has a licensed capacity of 89,000/kg per year out of its Moncton, New Brunswick headquarters.
Currently, OrganiGram is trading at around seven times its sales and a price-to-book (P/B) multiple of 1.7. It’s a decent price for a cannabis stock that’s valued at a modest market cap of $400 million, which could have a lot of potential in the edibles market. OrganiGram looks like one of the better buys in the industry today.
2. Aurora Cannabis
Aurora Cannabis (NYSE:ACB) is not an under-the-radar stock like OrganiGram, as its market cap of $2.8 billion makes it one of the top pot stocks in the world. Like Organigram, Aurora has seen its share price crater over the past six months, falling by 65%.
The company has struggled with profitability and meeting analyst forecasts, as it has recorded a loss in three of the past four quarters. Its net loss over the trailing twelve months totaled CA$383.5 million on sales of CA$293.5 million. Meeting expectations won’t get any easier now that the company’s sales in Germany have been halted after it failed to get a permit for what Chief Operating Officer Cam Battley said is “treatment that we use to maintain the product without microbial contamination.” Investors learned of the temporary hold on sales in November, and the company expects that operations will go back to normal “very early in the new year.”
It’s a setback that is only going to make things more challenging for Aurora for its current quarter. Currently, Aurora is trading at more than 12 times its sales and its P/B is at 0.80. Given that investors could be disappointed again when the company reports its Q2 results in February, even these relatively low multiples may make Aurora too expensive to buy today, as there could be further losses for the stock in the months to come…
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