Canopy Growth Corp is a sell, Echelon Wealth Partners says

Ahead of the company’s first quarter results due tomorrow, Echelon Wealth Partners analyst Russell Stanley says he thinks Canopy Growth Corp. (TSX:WEED, NYSE:CGC) is overvalued.

On Tuesday, after the market close, Canopy will report its Q1, 2019 results. Stanley thinks the company will generate EBITDA of negative $21.4-million on revenue of $25.4-million.

The analyst, who today reiterated his “Sell” rating and one-year price target of $30.00, says the stock’s “stretched” valuation is the driver behind his bearish take.

“We continue to struggle with WEED’s valuation,” Stanley says. “We agree that Canopy deserves a premium multiple, but its current EV/C2019E EBITDA multiple is now 375% above that of the broad peer group, which is well above its traditional 200% level (and the 300% premium implied by our target price). On that basis, we reiterate our Sell rating, but will continue to reassess our rating based on further corporate and industry developments.”

Stanley thinks WEED will generate Adjusted EBITDA of negative $3.4-million on revenue of $327.3-million in fiscal 2019. He expects those numbers will improve to EBITDA of positive $175.1-million on a topline of $875.5-million the following year.

“We note that costs are likely to remain elevated this quarter as production, marketing, and staffing is ramped up ahead of broad legalization, which drives our forecast for a sizeable EBITDA loss (relative to sales),” the analyst adds. “However, more emphasis should be placed on the coming quarters. Our estimates contemplate WEED beginning initial shipments to provincial buying authorities in the current quarter (FQ219, ended September 30th), stemming EBITDA losses, and we anticipate WEED being EBITDA positive before the end of this calendar year following broad recreational use legalization.”

Stanley’s $30.00 price target on Canopy Growth Corp. implied a return of negative 14 per cent at the time of publication.