CRON Stock: Target Price and Valuation Update

So far, July hasn’t been a good month for Cronos Group (CRON) stock. The stock has lost almost 11%. With only two more trading days left in the month, the stock will likely end in the negative territory.

CRON stock struggled

The whole cannabis industry has been facing a dampened sentiment. As a result, most of the cannabis stocks have faced a similar trend as Cronos Group stock. Cannabis companies delivered weak earnings. Most of the negativity in the market appears to be due to lower expectations for the companies’ earnings.

Also, there has been a flow of negative news related to the cannabis industry. Recently, we saw how the CannTrust (CTST) fiasco unfolded. First, the company didn’t comply with Health Canada’s regulations. Then, CannTrust fired its CEO.

In a more recent development, Curaleaf (CURLF) was served with a warning from the FDA for promoting certain products. The company’s products didn’t comply with the FDA guidelines. Before we discuss Cronos Group’s target price and valuations, we’ll look at the latest developments.

CRON’s latest developments

Last week, Cronos Group announced that it entered an agreement with Heritage Cannabis Holdings to fill and package vaporizers. Cronos Group stated that the agreement has an annual potential value of $35 million

Like Canopy Growth (WEED) (CGC) and Aurora Cannabis (ACB), Cronos Group focuses on the next phase of the cannabis industry. In Canopy Growth’s fourth-quarter earnings, it said that it’s focusing on cannabis-infused beverages, chocolates, and vaping devices. OrganiGram (OGI), which released its earnings on July 15, discussed the interest in vaporizer products. Drawing the conclusion from the US sales data, OrganiGram stated that vape pens accounted for up to one-fifth of the cannabis-derived form factor.

Reiterating OrganiGram’s view, Heritage Cannabis stated that vape pens will form a “substantial part” of the cannabis derivative market. Earlier this month, Cronos Group entered into an agreement to acquire a facility with 84,000 square feet. The company expects to use the facility for some of its derivative products. The developments didn’t faze investors. 

CRON Stock: Target Price and Valuation Update

Analysts’ target price update

Over the past few months, analysts have turned bearish on Cronos Group stock. In July, more analysts have provided coverage on the company with an overall consensus “hold” recommendation. Among the 13 analysts covering the stock, seven recommended a “hold,” two recommended a “sell,” and two recommended a “strong sell.” One analyst recommended a “strong-buy,” while one recommended a “buy.”

The company’s target price has also been falling. The current consensus target price was at 19.7 Canadian dollars compared to 21.8 Canadian dollars three months ago.

CRON Stock: Target Price and Valuation Update

Valuations update

Cronos Group is among the few stocks that have continued to trade at a premium compared to its peers. As of Monday, Cronos Group stock was trading at a forward EV-to-sales multiple of 27.8x compared to the peer median of 5.7x. The peer median includes 12 cannabis companies mentioned in the footnote of the above chart. Cronos Group’s peers also traded at a premium to the median valuations. Canopy Growth, Aurora Cannabis, and Tilray were trading at forward multiples of 11.4x, 15.1x, and 12.9x as of Monday.