Valuation multiples

In the earlier part of this series, we discussed how cannabis stocks (HMMJ) performed last week and saw how they have delivered losses so far this year. Since valuation multiples give insight into stock price movements, we’ll discuss how valuation multiples for cannabis stocks moved.

How Cannabis Stocks’ Valuations Looked Last Week

Forward EV-to-sales

The forward EV-to-sales (enterprise value to sales) ratio for the cannabis sector hit a low point in April as the above chart shows. The median multiple for the overall peer group, which includes Canadian-listed cannabis stocks along with US-listed stocks that have cannabis-related products, hit a low of 5.2x in April 2018 but bounced back to 6.3x last week.

The median average forward EV-to-sales multiple of Canadian producers such as Canopy Growth (WEED), Aphria (APHQF), Aurora Cannabis (ACB), Hydropothecary (HYYDF), and MedReleaf (MEDFF) reached a low point of 8.4x in April but bounced back in the following weeks to 10.1x as of May 11.

The resistance levels

The multiple of 5.0x appears to have formed the resistance level in the past. Similarly, the median EV-to-sales ratio of Canadian cannabis producers fell to a low of 8.8x earlier this month but bounced back in the following weeks.

Next, we’ll compare the Canadian cannabis producers’ forward EV-to-sales valuation multiples last week.

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