Shares of Cronos Group Inc (NASDAQ: CRON) have taken a hit, in the wake of a number of analysts issuing downgrades on the stock. The upside action has also come under pressure as investors react to a wider than expected net loss for FY2018.
Share Price Analysis
After a stellar start to the year, the stock is once again under pressure as bears threaten to push the stock lower. Concerns over the rate at which the Canadian adult-use marijuana market is growing also appears to have had a hand in the stock’s woes in the market.Amidst the underperformance in the market, Cronos has once again affirmed its credentials having posted a 248% increase in revenues. In addition, the company is fresh from securing a CA$2.4 billion strategic growth investment from Altria Group Inc (NYSE: MO).Expanding production footprint is another development that continues to affirm the company’s growth prospects as demand for cannabis products continues to grow. It remains to be seen if the solid fundamentals have what it takes to avert a further slide of the stock.The recent sell-off wave has already breached the $20 a share support level, a development that leaves the stock vulnerable to further drops. Immediate support as part of the emerging bear trend is seen at the $14 a share level. CRON Daily ChartAbove the $14 technical level, Cronos remains bullish and well supported for further movements on the upside. Conversely, a breach of the technical level could see the stock turning bearish with short sellers in firm control.
About Cronos
Cronos bills itself as a diversified and vertically integrated cannabis company with operations in five continents. The company is engaged in the production and distribution of cannabis. The company is currently expanding its footprint as it seeks to become an iconic international brand.
Why is Cronos Group Imploding?
Shares of Cronos Group are imploding in the market on a number of brokerage firms downgrading the stock to a sell. Analysts at Canaccord downgraded the stock to a sell on concerns about the company’s financial results for the last three months of 2018. The analysts have also raised concerns over the rate at which the Canadian adult-use market is growing something that could affect the company going forward.Canaccord Genuity analyst, Matt Bottomley has raised concerns about Cronos valuation given that its recreational cannabis sells fell behind those of its peers.
“We are lowering our recommendation to ‘sell’ primarily on valuation. We believe CRON’s valuation was somewhat stretched at Altria’s investment price of $16.25,” Mr. Bottomley in a note to clients.
GMP Securities analyst, Martin Landry, has also downgraded the stock to a ‘hold’ and trimmed share price target to $24 from $25. The analyst on his part has raised concern over the impact of a weaker than expected average selling price per gram.
Widening Net Loss
The downgrades come on the heels of Cronos reporting mixed financial results for FY2018. The company reported a 248% increase in net revenues that came in at $5.6 million. The increase was mostly driven by increased shipments to the Canadian adult use market.However, a wider than expected net loss of -$11.6 million compared to a net profit of $2.1 million reported in 2017 appears to have spooked investors, conversely triggering the sell-off wave. In defense of the company’s performance, the chief executive officer, Mike Gorenstein insists the company accomplished a great deal in 2018 and remains focused on strategic objectives.Cronos has since inked a C$2.4 billion strategic investment from Altria Group that it intends to use to expand its footprint in the cannabis sector.
“We’ve expanded our production footprint domestically and internationally, developed our distribution with global partnerships, launched iconic brands for the Canadian adult-use market and grown our IP portfolio with landmark research and development initiatives,” said Mr. Gorenstein.
Bottom Line
Cronos Group is taking a beating on investors questioning the company’s profitability. A wider than expected net loss is the last thing that investors expected of a company enjoying robust growth in sales.Amidst the sell-off wave, one cannot dispute the fact that the company has tremendous potential for growth going forward. A 248% increases in sales underlines what the company is capable off as it continues to expand its footprint in pursuit of new opportunities for growth.A strengthened liquidity position with more than $70 million leaves the company in a strong position for robust growth as it continues to pursue strategic investments. That said a pullback from an all-time high might as well have presented an opportunity to buy a stock with tremendous potential at a discount.We will be updating our subscribers as soon as we know more. For the latest updates on CRON, sign up below!Disclosure: We have no position in CRON and have not been compensated for this article.
Discover Hidden Gems
Don't miss the next big opportunity. Subscribe for timely alerts on potential market movers.
