Cannabis stocks’ valuations
With cannabis stocks (HMMJ) being on a rollercoaster ride over the past month, it’s time to look at how the valuations stack up and whether the stocks are still a good buy. A quick way to determine the valuations would be to look at the cannabis industry’s average valuation. You would compare your stock with the industry average to determine whether it’s cheap or trading at a premium. In this series, we’ll discuss the industry average valuations. We’ll compare each of the stocks with the average.
In the above chart, we’ll look at the yellow line, which represents Canadian cannabis stocks. The line is the average EV-to-sales multiple of nine cannabis stocks. The stocks include Canopy Growth (WEED), Aurora Cannabis (ACB) (ACBFF), Tilray (TLRY), and Cronos Group (CRON). The line gives us a sense of how the current levels compare to the past two years.
The current industry level is trading at an EV-to-sales multiple of 4.6x, which has declined nearly 20% over the past month. In the chart, you can see that the valuation stocks are trading at an all-time low compared to the last two years, which indicates that the stocks are trading at a discount.
Next, we’ll discuss how individual stocks have fared in the past month.