Canopy Growth Corp. is worth just $13.00 a share, Echelon Wealth says

Shares of Canopy Growth Corp. (TSX:WEED) have fallen sharply in 2018, but would-be bargain hunters should continue to treat the stock with caution, Echelon Wealth Partners analyst Russell Stanley says.

On February 7, Canopy Growth Corp.announced it had completed a previously announced bought deal worth just over $200-million by selling 5.8-million shares at $34.60. The offering was underwritten by a syndicate co-led by GMP Securities LP and BMO Capital Markets, and including Canaccord Genuity Corp., Eight Capital, Beacon Securities Ltd. and PI Financial Corp.

Stanley says the financing positions the company very well to continue it aggressive expansion plan, but says even with the top of its share price recently lopped off, Canopy is a very expensive stock.

In a research update to clients Friday, Stanley maintained his “Sell” rating and one-year price target of $13.00 on Canopy Growth Corp., implying a return of negaitive 52 per cent at the time of publication.

While we continue to view WEED as worthy of a valuation premium for its industry leadership in a number of respects, the multiple implied by the current share price (60x consensus EV/C2019E EBITDA, or 56x the average of all published estimates excluding our own) is now several times the cannabis group average of 17x,” the analyst notes. “Our valuation approach for WEED (21x our estimate for C2020E EBITDA) is the most bullish valuation approach in our coverage universe, but as the implied valuation is well below the current share price, we continue to rate WEED a SELL.”

Stanley thinks Canopy will generate EBITDA of negative $17.6-million on revenue of $87.1-million in fiscal 2018. He expects those numbers will improve to EBITDA of positive $19.5-million on a topline of $278.7-million the following year.