Forward EV-to-sales multiple
Most of the cannabis companies are currently incurring losses, which makes it impossible to use PE multiples as a valuation tool to compare peers within the sector. Therefore, it is a little challenging to choose a valuation multiple for cannabis stocks. However, we can use EV-to-sales multiples, which would give us a better perspective on where the cannabis companies are in comparison to their peers.
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As the above chart shows, the peer median current valuation for the cannabis sector is close to an all-time low at 6.2x. In fact, it is close to the resistance that has been tested almost two times in the past two years. However, in December, the valuation multiple breached the first resistance level and continued to trend lower and reached a low point of 3.0x. The peer median includes the median of the 12 cannabis stocks including Tilray (TLRY), Aurora Cannabis (ACB), Canopy Growth (WEED), and Aphria (APHA).
However, the current multiple of 6.2x is lower than the average of 8.0x over the past two years, which indicates that the cannabis industry is trading at a relative discount when compared to its historical average over the past two years. The valuation multiples reached a high of ~14.7x in October last year when sales of recreational cannabis began in Canada (MJ).