Cronos Group Inc Is Attractively Priced for Strong Moves
It’s an opportune time for investors to look at shares of mid-cap cannabis company Cronos Group Inc (NASDAQ:CRON). This vertically integrated marijuana play is priced to generate strong long-term price appreciation that could easily see CRON stock double.
The tailwinds for Cronos stock are supported by an evolving Canadian marijuana market that is posed to grow in the years ahead, as well as a potentially lucrative U.S. marijuana market that may be on the brink of a strong upward move.
CRON Stock Chart Shows Potential
There’s an old saying that “you can’t judge a book by its cover.” That’s the case with Cronos stock.
Trading well below its 52-week high of $25.10, CRON stock is extremely technically oversold and could see a strong bounce from the lows. This stock is below its 50-day and 200-day moving averages, looking for support.
The following chart shows Cronos stock failing to hold its previous sideways channel. Look for this stock to hold after the over-selling and then stage a move back to the channel.
Chart courtesy of StockCharts.com
A move toward the upper channel around $9.00 implies a nice gain of 65%, and that’s only the start for CRON stock. Upper targets are found at $13.00 and $15.00, while the lower boundary is likely limited, hence the strong risk/reward situation.
Fundamentals Support Higher Cronos Stock Price
Cronos Group’s revenues surged 285% to CA$15.7 million in 2018. (Source: “Cronos Group Inc.” MarketWatch, last accessed March 2, 2020.)
The company is estimated to report an adjusted CA$1.83 per diluted share for 2019, but the estimates range from a loss of CA$0.12 per diluted share to profits of CA$3.14 per diluted share. The large range of earnings estimates indicates some uncertainty among analysts.
Cronos Group’s balance sheet holds around CA$32.6 million in cash and no debt.
The company will need more capital though. The fact that Cronos is 45% owned by tobacco powerhouse Altria Group Inc (NYSE:MO) is positive in that regard.
I doubt Altria will allow CRON stock to slide after paying US$1.8 billion for its stake. This values Cronos Group Inc at roughly $4.0 billion, or double its current market cap.
Cronos stock looks primed for a rally. If Cronos Group Inc can deliver close to its consensus 2019 profits, it would imply a cheap multiple of only 4.2 times the company’s 2019 profits.
Even if the company earns only half of the consensus estimate, the valuation for CRON stock would still be attractive.