Green Growth Brands (NYSE:GGB) reported its results for the second quarter of fiscal 2020 on February 24. For the quarter, the company outperformed analysts’ revenue and EPS expectations. Despite the impressive second-quarter performance, the company has lost 33.7% of its stock value since it reported its second-quarter earnings. On the same day, Green Growth Brands announced that it will sell its CBD business to The BRN Group. The company also announced that it will restructure its debt and raise equity to improve its financial position to scale its MSO operations. All of these factors contributed to a fall in the company’s stock price. Let’s look at analysts’ recommendations after Green Growth Brands’ second-quarter earnings.
Analysts’ target price for Green Growth Brands
Since Green Growth Brands reported its second-quarter earnings, Eight Capital and Canaccord Genuity have lowered their target prices. Eight Capital cut its target price from 2 Canadian dollars to 0.25 Canadian dollars, while Canaccord reduced its target price from 1.75 Canadian dollars to 0.85 Canadian dollars. Compared to the previous month, analysts’ consensus target price fell 100.5% from 3.75 Candian dollars to 1.87 Canadian dollars. The new target price represents a return potential of 555% from its stock price of 0.285 Canadian dollars as of Monday. In the above graph, you can see that analysts have lowered their target prices since August 2019. I think that the company’s decision to sell its CBD business, which generated over 50% of its revenue, might have prompted analysts to lower their target prices.
After Green Growth Brands reported its earnings, Eight Capital downgraded the stock from “buy” to “sell.” As of Monday, three analysts follow the company. Among the analysts, two recommend a “strong-buy,” while one recommends a “strong-sell.” Let’s look at analysts’ ratings for the company’s peers:
- Wall Street is bullish on Curaleaf. Among the nine analysts, eight recommend a “buy.”
- Among the 16 analysts that follow OrganiGram, 12 recommend a “buy.” Read OrganiGram: What Do Analysts Recommend Right Now? to learn more.
- Among the 16 analysts that follow HEXO, seven recommend a “sell,” six recommend a “hold,” and three recommend a “buy.”
My take on Greeb Growth Brands
Since the beginning of this year, Green Growth Brands has lost 64.4% of its stock value. The company has underperformed its peers during this period. Curaleaf, OrganiGram, and HEXO have fallen by 14.1%, 7.8%, and 28.5% YTD, respectively. If Green Growth Brands sells its CBD business, it could lower its revenue significantly. Also, the new equity offering could dilute the company’s stockholding and lower its EPS. So, I expect the company to continue underperforming its peers.