In this series, we considered the forward EV-to-sales multiple to determine whether cannabis stocks look expensive. In this part, we’ll discuss the EV-to-EBITDA multiple.
In the above chart, the EV-to-EBITDA multiple is similar to what we observed for the forward EV-to-sales multiple. The median forward EV-to-EBITDA valuation multiple for Canopy Growth (WEED) (CGC), Tilray (TLRY), Aurora Cannabis (ACB), Cronos Group (CRON), and others reached a low point of 10.2x in December. The valuation multiple started appreciating in January. The current level is 17.8x as of February 6.
Between January 2017 and January 2019, the median was ~32.4x. The cannabis sector has experienced a lot of volatility in the past two years. At times, the valuations were at levels that could not be justified by fundamentals.
The EV-to-EBITDA valuation multiple reverses after it reaches a certain point whether it’s at a historical low or high. The movement should guide investors (MJ) on when to enter or exit if they’re considering cannabis stocks for their portfolio.
Next, we’ll compare individual cannabis stocks with the peers’ median.