Canopy Growth Corp (CGC): A Deep Dive into Its Performance Potential

Unraveling the Factors That May Limit Canopy Growth Corp's Outperformance

Long-established in the Drug Manufacturers industry, Canopy Growth Corp (CGC, Financial) has enjoyed a stellar reputation. It has recently witnessed a surge of 13.6%, juxtaposed with a three-month change of 116.5%. However, fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Canopy Growth Corp.


Understanding the GF Score

The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.

Based on the above method, GuruFocus assigned Canopy Growth Corp the GF Score of 51 out of 100, which signals poor future outperformance potential.

Canopy Growth Corp: A Snapshot

Canopy Growth Corp, headquartered in Smiths Falls, Canada, cultivates and sells medicinal and recreational cannabis, and hemp, through a portfolio of brands that include Doja, 7ACRES, Tweed, and Deep Space. Its non-THC products include sports drink BioSteel, skincare products under This Works, Martha Stewart CBD, and Storz & Bickel vaporizers. Canopy growth is attempting to merge its U.S. assets into a separately operated holding company, Canopy USA, which will not be consolidated into the Canadian company's financials. The company has a market cap of $1.02 billion and sales of $298.57 million, but its operating margin stands at -132.02, indicating potential profitability issues.


Financial Strength Analysis

Canopy Growth Corp's financial strength indicators present some concerning insights about the company's balance sheet health. The company has an interest coverage ratio of 0, which positions it worse than 0% of 679 companies in the Drug Manufacturers industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. The company's Altman Z-Scoreis just -6.96, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.5 indicates a struggle in handling existing debt levels.

Profitability Analysis

Canopy Growth Corp's low Profitability rank can also raise warning signals. The company's Gross Margin has also declined over the past five years, as evidenced by the data: 2019: 12.48; 2020: -7.95; 2021: 12.25; 2022: -39.81; 2023: -25.85. This trend underscores the company's struggles to convert its revenue into profits.


Given the company's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. While Canopy Growth Corp has a strong reputation in the Drug Manufacturers industry, its current financial indicators suggest that it may struggle to maintain its historical performance. Investors should consider these factors when making investment decisions.

GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen


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