CGC Stock: Canopy Growth Corp’s Disappointing Quarterly Report Could Lead to Big Gains

CGC Stock: Canopy Growth Corp’s Disappointing Quarterly Report Could Lead to Big Gains
iStock.com/panida wijitpanya

CGC Stock Quarterly Report

It has been a very strong year for Canopy Growth Corp (NYSE:CGC). That is, until May hit. Since then, we’ve seen a big regression by the broader stock market, with Canopy Growth stock taking a moderate hit.

But the recent bad run for CGC stock has taken an even worse turn, with the company releasing its latest quarterly report, which came in under analysts’ expectations.

In my mind, this is just a stumbling block for Canopy Growth, and by no means derails the stock’s potential. In fact, I predict that the CGC share price will bounce back even stronger following its recent dip.

First, let’s take a look at what went wrong with the company ’s fourth-quarter report.

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Canopy Growth reported an adjusted loss per share of CA$0.98, versus an expected CA$0.32. The company’s adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) loss was CA$97.7 million, which was much higher than the expected EBITDA loss of CA$63.8 million. (Source: “Cannabis producer Canopy Growth slips after a disappointing earnings report (CGC),” Markets Insider, June 21, 2019.)

The company attributed its higher-than-expected losses to its investments in sales and marketing, as well as its spending on administration and other general expenses.

But the financial report wasn’t all bad.

Revenue for the quarter was CA$94.1 million, against an expected CA$92.2 million.

Annual net revenue grew 191%, hitting CA$226.3 million, with CA$140.5 million of gross revenue generated from the Canadian recreational marijuana sector and CA$78.9 million from the global medical marijuana sector. (Source: “CANOPY GROWTH CORPORATION REPORTS FOURTH QUARTER AND FISCAL 2019 RESULTS WITH ANNUAL SALES OF$226.3M,” Canopy Growth Corp, June 20, 2019.)

The company’s fourth-quarter revenue increased by 13% from the third quarter.

Canopy Growth’s Canadian harvested cannabis is expected to increase to about 75,000 pounds in the first quarter of fiscal 2020.

“With more product formats coming to the Canadian market later in the year, we are working hard to ensure that we are ready to hit the ground running with products, formats and brands that Canadians trust,” said Bruce Linton, co-CEO of Canopy Growth. (Source: Ibid).

I had written earlier that, if we were to see continued financial decline from Canopy Growth, then CGC stock would be in trouble. That’s what happened with the company’s recent earnings report, and I believe that the stock is in trouble, at least in the short term.

Between the overall downturn in the marijuana stock market, combined with Canopy Growth’s disappointing quarterly report, I see investors losing a bit of confidence in the company.

But here’s the thing: overall, Canopy Growth is a powerhouse marijuana stock. The company didn’t see the huge stock-price gains that it did based on hype. Quite the contrary: Canopy Growth made huge gains in early 2019 because it had registered a number of strong achievements.

From the strongest Big Alcohol partnership in the legal cannabis industry, to a globally minded expansion strategy, to the moves it has made toward the U.S. market, there’s a lot to appreciate about Canopy Growth, and a lot of ways for the company to turn its fortunes around in a hurry.

In fact, the recent dip in its share price may be a blessing for first-time investors: CGC stock is at a discount right now.

Chart courtesy of StockCharts.com

Analyst Take

Canopy Growth stock is very well suited for a bounceback, especially considering that expectations are likely going to be lowered following its recent quarterly report.

If any of the company’s many ambitious plans come to fruition in the near future (e.g. entering the U.S. cannabidiol market), then I would expect CGC stock to surge.

While the short term may present some problems for Canopy Growth Corp, ultimately I’m still very bullish on this stock.