- More positive than negative from Canopy Growth’s most recent earnings report.
- Broad fundamentals moving in the right direction.
- If the firm can balance the transition toward CPG goods then it has reasonably good potential.
Expect shares of Canopy Growth Corp. (NASDAQ:CGC) stock to move moderately up at best moving forward. Bullish investors are mostly hoping for too much following the Canadian cannabis firm’s February earnings report.
Although there were plenty of positives to take from that report, the company has an uphill battle in front of it. It is also trading at fully-valued levels right now. For it to move beyond those prices it’s going to have to prove that its strategy can deliver moving forward.
| CGC | Canopy Growth Corp. | $7.39 |
Positive Momentum
Speaking from the perspective of broad fundamentals, Canopy Growth doesn’t look that bad right now. In fact, it’s fairly easy to make a compelling argument in favor of CGC stock after the Feb. 9 earnings report.
That’s because it underwent something of a transformation from a growth company that reported a massive net loss of $904.38 million CAD in the last three months of 2020. A year later Canopy Growth showed massive improvement on that basis. In the same period during 2021 it reported a much smaller $108.925 million CAD net loss.
But that’s where things get a bit tricky. Investors can be positive about that drastic improvement. That’s warranted. However, then there’s the more nuanced discussion of revenues. At the macro level, revenues weren’t strong. Canopy Growth reported $155.024 million CAD in total revenue. That represented an 8.7% decrease from the same period a year earlier.
That’s a negative simply put. The nuance comes in as a discussion of where those revenues came from and how they grew.
Growth Potential
The question for potential and current CGC stock investors is company strategy as it relates to cannabis sales and consumer product sales. Canopy Growth saw growth from its consumer products segment. In aggregate, that sector showed 19% growth. The firm’s other two business divisions contracted by 20% and 25%, respectively.
But consumer goods only accounted for 41% of total revenues in the latest quarter. So, Canopy Growth will likely shift toward a greater proportion of cannabis CPG products, but it isn’t simple. The company can’t simply do so with the snap of a finger.
That’s going to take time. But that does seem to be the direction the company has chosen. Remember, consumer products accounted for 41% of revenues in the most recent quarter. A year earlier they accounted for 31% of revenues.
It is a balancing act. The company is going to lean heavily on its BioSteel sports drink and Storz & Bickel vape brands to subsidize its growth.
What to Look For
Canopy Growth isn’t anticipated to produce increasing revenues moving forward. The 15 analysts listed on Yahoo Finance expect it to report roughly $136 million CAD in revenues in the coming quarter. That’s a slight decrease sequentially.
But investors should be more keyed in on consumer goods revenue growth. If Canopy Growth can increase sales of those, especially BioSteel, it should rise. If that happens, it should lead the company closer and closer to profitability.
And make no mistake, profitability is what has been plaguing cannabis firms since legalization. If Canopy Growth can shift its product mix away from cannabis and into consumer products featuring cannabis that will benefit the firm and stock.
What to Do With CGC Stock
From a fundamental perspective, there are some things to like about CGC stock. Primarily, the company’s rapidly improving net losses. Revenues did decline overall on a year-over-year basis. But the positive there was that consumer goods sales made up for that decline to a degree. That’s the strategy the company will likely expand moving forward. Consumer packaged goods have a lot of added value. That could be important at a later date.
That looks to be where the company is headed in the future. CGC stock probably won’t move up much soon. But the future is booking brighter if it can work that strategy successfully.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.