Aurora Cannabis Inc. (ACB) and Canopy Growth Corporation (CGC) are two leading cannabis producers. While ACB manufactures cannabis through horizontally and vertically integrated value chain production, CGC develops cannabis for both medical and recreational uses through two segments – Cannabis Hemp and other Consumer products.
Both companies have generated significant returns over the past five years. While ACB gained 28.7% over this period, CGC returned 1081.2%. In terms of six-month price performance, CGC is the clear winner with 29.6% gains versus ACB negative returns.
But which stock is the better buy now? Let’s find out.
On October 1st, CGC partnered with Acreage Holdings, Inc. to distribute its select THC beverage collection across the United States in summer 2021. CGC entered into a collaborative agreement with Martha Stewart and Marquee Brands to launch a new line of hemp-derived wellness supplements under Martha CBD. Additionally, CGC announced the opening of 10 new retail stores across Canada in August.
ACB is currently in the process of reducing costs through layoffs and shut down of unprofitable product lines. It is reportedly aiming to develop high-cost projects through external contractors to reduce overhead expenses for the next two quarters. This should allow the company to generate substantial profits from operations.
Recent Financial Results
CGC’s net revenue grew 22% year-over-year to C$110 million in the fiscal first quarter ended June 2020. Gross margin increased 1,300 basis points sequentially to 7%. CGC ended the quarter with C$2 billion in cash and short-term investments.
ACB’s adjusted gross margin on consumer and medical cannabis revenue increased 600 basis points and 700 basis points, respectively, in the fiscal fourth quarter ended June 2020. Medical cannabis revenue grew 4% from the previous quarter to $32.20 million. The company had $162.18 million in cash as of June 30th.
Past and Expected Financial Performance
ACB’s revenue and total assets increased at a CAGR of 149% and 105.1%, respectively, over the past three years. Analysts expect EPS and revenue to grow 96.4% and 12.7%, respectively, in 2021.
CGC’s revenue and total assets increased at a CAGR of 104.7% and 109.6%, respectively, over the past three years. Analysts expect EPS and revenue to rise 27.1% and 21.6%, respectively, in 2021.
CGC’s revenue is 1.50 times what ACB generates. CGC is also more profitable as well with a gross margin of 22.8%, compared to ACB’s negative values.
In terms of trailing 12-month price/sales, CGC is currently trading at 22.25x, 817.6% more expensive than ACB, which is currently trading at 2.29x. CGC’s EV/ sales of 20.64x is 121.6% more expensive than ACB’s 4.12x.
CGC is also more expensive than ACB in terms of trailing 12-month price to book ratio (1.98x versus 0.35x).
Thus, ACB is the more affordable stock.
While CGC is rated “Neutral” in our proprietary POWR Ratings system, ACB is rated “Strong Sell”. Here’s how the four components of overall POWR Rating are graded for both these stocks:
CGC holds a “B” for Trade Grade, Peer Grade, and Industry Rank, and “C” in Buy & Hold Grade. In the 240-stock Medical-Pharmaceuticals industry, it is currently ranked #120.
ACB has an “B” for Industry Rank, “D” for Peer Grade, and “F” for Trade Grade and Buy & Hold Grade. It is ranked #131 in the same industry.
With increasing demand for medical cannabis across the world and talks regarding legalization of marijuana in the United States if Biden becomes the next president, ACB and CGC have significant upside left. However, CGC has an edge over ACB as it manufactures cannabis for recreational usage as well, unlike ACB which sticks to medical needs. CGC’s promising growth over the past three years, favorable revenue and EPS growth outlook and higher profit margin make it a better investment option despite a premium valuation.
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ACB shares were trading at $4.77 per share on Thursday afternoon, down $0.08 (-1.65%). Year-to-date, ACB has declined -81.60%, versus a 8.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More…
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