No Cannabis Sub-sector is Immune from the Woes of the Canadian Pot Industry
The Valens Company (TSX:VLNS) announced Q3 2020 results that beat lowered analyst expectations on the EBITDA line, with revenue coming in-line.
In May of this year analysts had forecast revenue to be $43 million for Q3, however in the following two months they slashed revenue estimates down to $18 million. They also slashed EBITDA estimates by 93% over that same two month period.
Needless to say these analyst beasts are trivial given the massive downgrades in estimates. Revenue growth year-over-year stood at +10%, while EBITDA shrunk by -85% over the same period.
|Act. Q3||Est. Q3||% Beat/ Miss|
|% growth y/y||10%|
|% growth y/y||-85%|
With the Oil Extraction Bubble Deflated, Where to Now?
The price-to-sales ratio of the two main oil extraction stocks, Valens and MediPharm Labs (TSX:LABS), have significantly de-rated since the start of 2020. MediPharm’s multiple has fallen by 73% and Valens has fallen by 50%.
There was a time when “clever” hedge fund types boasted on twitter about the superiority of oil extraction vs. growing cannabis – needless to say they’ve been very quiet for while.
These stocks are now in the dreaded no mans land of valuation; they don’t have any growth and profitability is awful – what multiple should an investor pay for that? You got it, not a lot.
We simply don’t see a clean pathway for share price appreciation until profitability turns.
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