CRON Stock: The Cronos Earnings Report Sent Shares on a Wild Ride

CRON Stock Earnings Report
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CRON Stock Earnings Report

It’s rare to see a stock take a long tumble due to a poor earnings report, only to recover in an almost equal upswing the next day. But that’s what we’ve seen so far from Cronos Group Inc (NASDAQ:CRON).

The CRON stock earnings report, which was released on May 9, missed some analyst expectations, sending Cronos shares on a near-double-digit dive, only to recover with an over-five-percent gain by Friday afternoon.

So what was in the report that sent Cronos stock tumbling, and how did it stage a sudden comeback?

First, the bad news: Cronos Group claimed that its adjusted earnings will likely decline over the course of 2019.

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“As we continue to invest in our business, our brands and R&D initiatives, our adjusted Ebitda will likely decline over 2019 but position the company for accelerated growth in 2020,” said Chief Financial Officer Jerry Barbato. (Source: “Pot producer Cronos slides after forecasting earnings to fall through 2019,” BNN Bloomberg, May 9, 2019.)

This caused a steep decline in the company’s share prices, which prompted an opportunity for investors on Friday to capitalize on the upswing.

Cronos reported first-quarter revenue of CA$6.5 million. That was good for a 15% gain from the last quarter, but it missed the average analyst estimate of CA$7.0 million.

CEO Mike Gorenstein also voiced concerns in the earnings call, focusing on the need for balance between supplying the market now and ramping up for when edibles and other products become legal in Canada in October.

“I think right now it’s certainly a balance between selling everything you have and making sure that you can load for launch,” said Gorenstein. “Vapes, the category is very important to us, and making sure we’re able to launch with significant inventory is something that we’re continuing to prioritize.” (Source: Ibid.)

But it wasn’t all bad news and ruminations on the future.

The company saw an increase of 122% in kilograms sold compared to in the previous year. That increase was sparked by the Canadian legal marijuana market. Cronos Group also saw a healthy seven percent gain in kilograms sold compared to in the previous quarter. (Source: “Cronos Group Inc. Announces First Quarter 2019 Results,” GlobeNewswire, May 9, 2019.)

The company also managed to decrease its cost of sales per gram sold by 14%, another boon for CRON stock.

Finally, continued growth in cannabis oil sales was a positive this quarter, representing 23% of the company’s net product revenue in the first quarter of 2019 (compared to nine percent in the first quarter of 2018).

So while analyst expectations might have been missed, there was still a lot to like about the Cronos Group quarterly report.

Cronos Stock Prediction

Taking the CRON stock earnings report into account, what does the future hold for Cronos Group Inc?

Right now, I’m a little bearish on the company, at least for the short term.

While I see a lot of long-term potential in Cronos, the next few weeks will tell us a lot about the stock’s projection in 2019.

Chart courtesy of StockCharts.com

As seen in the chart above, Cronos stock has been absolutely dominant over the past year.

Compared to another industry leader, Canopy Growth Corp (NYSE:CGC), Cronos has left it in the dust since 2019 hit.

Part of that is the result of the Altria Group Inc (NYSE:MO) deal that saw the makers of “Marlboro” cigarettes buy a huge stake in Cronos Group Inc in a multi-billion-dollar deal.

But those lofty heights have been followed by a precipitous drop in the CRON stock price over the past few months, whereas CGC stock has been far steadier.

Cronos simply has more volatility due to its impressive rise, while other pot stocks are likely to see steady growth for the remainder of 2019. Cronos may face a market correction due to how high the stock rose earlier in the year.

Still, that doesn’t mean I’m totally bearish on Cronos stock. The company has a lot of potential and I believe its stock price will reach lofty heights again—and soon. However, investors might want to play it safe in the near future.

It’s worth noting that Cronos will soon be in a more crowded market as OrganiGram Holdings Inc (OTCMKTS:OGRMF, CVE:OGI) looks to join the Nasdaq. Aside from Tilray Inc (NASDAQ:TLRY), Cronos is the only other pure-play marijuana stock on the Nasdaq.

With the addition of OrganiGram into the mix, I expect to see some investor enthusiasm make its way to the much smaller and more promising pot stock.

Analyst Take

The latest CRON stock quarterly report was not all sunshine and rainbows, but there were several good takeaways.

While the near future may be a little bumpy for the company, the overall outlook for Cronos Group Inc is a strong one, with its stock more than capable of doubling in value in the next 12 months.