Aggressive Acquisitions and Revenue Improvement Favor Canopy Growth
It’s fair to say that Canopy Growth (NASDAQ:CGC) has an appropriate name, as the company has exhibited tremendous growth over the years. Recently, however, investors may have been disappointed in the performance of CGC stock.
The stock was on a tear earlier this year. However, the Canopy share price peaked in February and then started a multi-month decline.
CGC stock’s pop-and-drop might alarm some investors. Is the company in trouble, financially or otherwise?
Not at all, actually. If anything, the share-price slide is a prime buying opportunity as Canopy expands its business and posts impressive fiscal data.
A Closer Look at CGC Stock
2021 started off with a bang for CGC stockholders. Astoundingly, the share price doubled from around $26 in early January to a 52-week high of $56.50 on Feb. 10.
I like the company, but rallies of that speed and magnitude are difficult to sustain. It shouldn’t be too surprising, then, that Canopy shares retreated during the following months.
I should also mention, since it’s probably on people’s minds, that CGC stock’s run-up coincided with the onset of meme-stock mania.
And indeed, it’s possible that Reddit traders contributed to the rally in the Canopy share price. However, it would be difficult to prove this.
In any case, CGC stock tumbled all the way down as low as $20.50 by the start of July 16. Year-to-date, 2021’s gains were erased.
There’s a lesson to be learned here about what can happen when we chase after vertical price moves. Oftentimes, it’s not an ideal strategy.
The silver lining here is that investors may have a chance to add some shares at a highly favorable price point.
If you like Canopy Growth — and if you truly believe in “buy low, sell high” — then this might be the time to take action.
Smashing the Skepticism
It’s not difficult to find folks who are bearish on the cannabis market. Popular financial message boards are rife with skeptics and purveyors of doom and gloom.
Granted, the advent of Cannabis 2.0 (Canada’s decriminalization of cannabis-derivative sales) wasn’t the cash crop that some investors were hoping for.
Plus, the Covid-19 pandemic certainly threw a wrench in the works.
Yet, despite the marijuana industry’s problems, Canopy recently reminded investors of why it’s a renowned market leader.
I’ll let the skeptics chew on this: in fiscal year 2021, Canopy Growth achieved 37% net revenue growth on a year-over-year basis.
That impressive result was “driven by double-digit growth across Canadian cannabis, international cannabis and other consumer products businesses.”
Moreover, the company reported 38% year-over-year net revenue growth for 2021’s fourth fiscal quarter. (Canopy’s fiscal year ended on June 1.)
On top of all that, Canopy’s capital position appears to be improving as the company’s fiscal year 2021 free cash flow increased by 57% year-over-year.
Two Notable Acquisitions
While Canopy Growth’s financials are firming up, the company itself is expanding through acquisitions.
First, Canopy completed its acquisition of AV Cannabis in April of this year.
I feel that this event was significant, yet under-reported. AV Cannabis represents a leading cannabis brand in Ontario, commonly known to millennial and Gen-Z consumers as Ace Valley.
Then, in June, Canopy Growth finalized the company’s acquisition of Supreme Cannabis. I’ll admit, this event was thoroughly covered by the financial media.
The Supreme buyout should prove to be quite lucrative over the long term, and possibly even during the next few months.
As the press release explains, “the acquisition creates the opportunity for immediate value creation with an estimated $30 million in synergies to be captured within the next two years.”
The Bottom Line on CGC Stock
There’s no denying that the broader cannabis industry has had its share of problems.
Those issues won’t go away overnight, so the skeptics will continue to argue against owning shares of CGC stock.
Nevertheless, Canopy Growth remains on solid financial ground.
And in light of a pair of value-added acquisitions, it looks like this cannabis-market leader is only getting bigger and better.
On the date of publication, David Moadel 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.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
