Canopy growth (NASDAQ: CGC ) may have rallied during the spring rally for marijuana stocks, but since then, the popular marijuana legalization game has coughed up these gains, falling below $1 per share as I write this.
However, one sell-side analyst is always more active in the company’s prospects. But I’m not convinced. While the analyst offers some material to support his bull case, his argument doesn’t exactly explain how Canopy can deliver a 3 percent profit from here.
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Canopy growth and strong price targets
Currently, the average analyst price target for Canopy Growth is $1.22 per share, about 27% above its US share price as I write this. A target price outlier paints a completely different picture of Canopy Growth and your prospects. In a research note dated June 16th, Bill Kirk of Roth Capital Partners reiterated his buy rating and a C$5.00 price target on Canopy Growth.
That’s about four times the current value of Canopy’s shares listed on the Toronto Stock Exchange (TSX). In his review, the analyst noted that, had it not been for one-time charges, Canopy Growth would have “produced record adjusted EBITDA” (earnings before interest, taxes, depreciation, and amortization) during the recently completed fiscal fourth quarter. Kirk also cited improved market share, increased cost-cutting efforts, and other positives, such as the prospect of reducing shareholder dilution in the future.
Take this outside prediction with a grain of salt
Kirk may make a strong case, but it’s hard to see how his prediction will translate into a 4x increase in Canopy shares. His estimates for FY2027 call for revenue growth of around 5.1% and for adjusted EBITDA to remain negative, albeit close to breaking even. Meeting or beating this could be enough to send the stock modestly higher, to the mid-price target mentioned above, but not quadruple.
Perhaps Kirk’s prediction anticipates faster-than-expected progress in US federal marijuana legalization efforts. However, there are some marijuana stocks with strong fundamentals and legal incentives, such as the already profitable US marijuana companies that are licensed at the federal level. If you’re serious about the trend, consider these words instead, and take Kirk’s optimistic prediction about Canopy Growth with a grain of salt.
