Canopy Growth Corp.
Canopy Growth Corp. (TSX: WEED), formerly Tweed Marijuana Inc, is a Canada-based multi-brand cannabis company, which is engaged in producing and selling of legal marijuana in the Canadian medical market through its subsidiaries. Its core brands are Tweed and Bedrocan.
Key highlights
Source: Company
Financial overview of Q3 2021 (In thousands of CAD)
Source: Company
Risks associated with investment
The Company operates in challenging market conditions which may impact the operation performance and reduce financial performance. Any change in regulations and government policies could affect the overall business of the Company.
Valuation Methodology (Illustrative): EV to Sales
Note: All forecasted figures and peers have been taken from Thomson Reuters
Stock recommendation
The Company has shown a decline in financial performance in Q3 2021. Despite the higher revenue, the bottom-line performance declined, while profitability margins remained in the negative zone. However, with the recent acquisition of AV Cannabis and another acquisition in the pipeline, the Company would strengthen its position with the industry-leading house of brands. Furthermore, WEED made its presence in the high-potential U.S. CBD beverage category with the launch of Quatreau, a premium ready-to-drink CBD-infused sparkling water, which is a positive step. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating on the stocks at the closing price of CAD 34.89 on April 13, 2021.
1-Year Price Chart (as on April 13, 2021). Source: Refinitiv (Thomson Reuters)
Spin Master Corp.
Spin Master Corp. (TSX: TOY) is a children's entertainment company operating in the nearly USD 100 billion global toy industry. The group creates, designs, manufactures, and distributes a portfolio of products, brands, and entertainment properties across five key categories, namely outdoor, remote control and interactive, boys action and construction, preschool and girls, and activities games and puzzles and plush.
Key Highlights:
Source: Company Presentation
Q4FY20 Financial Highlights:
Source: Company Report
Risk: Change in consumer preference might take a toll on the demand. Moreover, the group must focus on creative innovations to remain competitive within the industry.
Stock Recommendation:
The company has an available liquidity of USD 838.0 million at the end of FY20, which seems to be sufficient to meet its operational requirements. Free cash flows increased to USD 232.1 million v/s USD 4.7 million in FY19, supported by strong growth from operating cash flows. Moreover, the company focused on optimizing inventory levels and reported its inventories at USD 102.0 million, down 45% on y-o-y basis. Going forward, the group would continue to innovate using its global internal and external R&D network and would focus on increasing sales in International Developing and Emerging Markets. On the valuation front, the stock is trading at a forward EV to Sales Multiple of 1.6x v/s the industry (Consumer Cyclicals) average of 2.8x, reflecting a further room for price appreciation. Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 39.26 on April 13, 2021.
One-Year Price Chart (as on April 13, 2021). Source: Refinitiv (Thomson Reuters)
Disclaimer
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