Decibel Cannabis is deeply undervalued, Ventum says

Decibel Cannabis (Decibel Cannabis Stock Quote, Chart, News, Analysts, Financials TSXV:DB) is poised for a revaluation as it returns to growth in 2025, according to a new report from Ventum Capital Markets, which says the company’s improving financials and international expansion plans leave its shares trading at deeply discounted levels.

Based on a discounted cash flow valuation, analyst Andrew Semple maintains a Buy rating and a $0.20 per share price target on Decibel. He said the stock remains deeply undervalued, trading at 3.8 times 2025 estimated EBITDA and 6.0 times 2025 earnings, with a normalized free cash flow yield of over 34%. Semple said the stock has “the potential for outsized gains over the next few quarters as it recovers from distressed valuation levels and as the market begins the process of revaluing Decibel’s shares as a going concern.”

“While the Company’s balance sheet still requires some work towards deleveraging (specifically, accounts payable), we no longer view liquidity as tight, and we believe there is a sufficient margin of safety in our earnings forecasts to justify the risk,” Semple wrote in his April 22 corporate update.

“As evidence of our view that Decibel remains viable, we stress that the company repaid $11.0-million accounts payable and debt in 2024, despite needing to address stiffening competition in its key product categories and facing headwinds in the international segment for most of the year.”

Semple believes Decibel Cannabis is undervalued for several key operational and financial reasons.

The company delivered strong Q4 2024 results, particularly from international sales, which hit a record $ 3.4-million following its acquisition of AgMedica and its EU-GMP-certified facility. This acquisition opens up a scalable path for export-led growth in 2025, even as domestic Canadian sales declined during the quarter. Semple views international sales as a significant growth driver.

Management is sticking to its 2025 guidance of $130-million in sales and $25-million in EBITDA, which remains above the analyst’s forecast and signals confidence in continued earnings momentum, especially in the year’s second half.

“We are pleased to see that the company expects to remain on track with this objective. Management expects Q1/25 sales and earnings to be lower sequentially (typical due to seasonality), but believes earnings growth will accelerate in Q2/25 with expanding international shipments,” Semple said.

Semple also points to meaningful balance sheet improvement, noting that Decibel finished the year with a three-year high $7-million cash balance.

“We no longer view liquidity as ‘tight’, and believe the company will have greater operating flexibility this year,” he said. “If Decibel meets our earnings expectations for the year, we believe the company’s balance sheet will be in good shape by YE 2025, with debt-to-capital declining to 33% and accounts payable nearing our $30-million interim target level (~100 days of payables). On that note, we highlight that Decibel removed the ‘Going Concern’ notice from its financial statements this quarter, which we view positively.”

Semple thinks Decibel will do $21.0-million in adjusted EBITDA on $112.0-million in revenue in fiscal 2025. He expects those numbers to improve slightly to $21.6-million in adjusted EBITDA on $123-million in revenue in fiscal 2026.

Semple noted that the company is adjusting its product mix.

“Decibel is also in the midst of revamping its product offering by leaning more into the flower category,” he said. “It is expanding the availability of Qwest-branded flower with new products expected in the coming quarters. It is also managing growing competition in the infused pre-roll and vape categories with the launch of several new SKUs to adapt to changing consumer preferences (including ultra-high potency vapes and infused pre-rolls, new large format all-in-one disposable vapes, and milled flowers), and it plans to expand marketing initiatives.”

Disclosure: Cantech Letter’s Nick Waddell owns shares of Decibel Cannabis.