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Cresco Labs: Target Price and Valuation Multiple

This month, the stock price of Cresco Labs (CRLBF)(CL) has increased by 7.8%. The company had reported its second-quarter earnings on August 20, outperforming analysts’ revenue estimate.

However, its EPS came in lower than analysts’ expectations. You can read more about the company’s second-quarter performance in Cresco Labs’ Q2 Revenues Might Boost Its Stock Price.

Cresco Labs

Cresco’s valuation multiple

The increase in Cresco’s stock price has raised its valuation multiple. On August 22, the company was trading at a forward EV-to-sales multiple of 1.42x compared to 1.32x at the beginning of this month. Despite the increase, the company is trading significantly lower than its average EV-to-sales multiple of 5.61x for the past seven months.

Compared to the median valuation multiple of 4.74x, Cresco continues to trade at a discount. The median is calculated from the 12 cannabis companies mentioned in the footnote of the chart above. Also, Cresco’s peers CannTrust Holdings (TRST) (CTST) and Cronos Group (CRON) were trading at forward EV-to-sales multiples of 2.03x and 14.52x, respectively, on the same day.

Cresco Labs

Analysts’ recommendations

The coverage on Cresco has increased from seven analysts in July to nine in August. Of these nine analysts, six favor a “strong buy,” while the remaining three recommend a “buy.” On July 29, Cormark Securities resumed its coverage on Cresco with a “buy” rating and a price target of 17.0 Canadian dollars.

However, from the graph above, we can see that the company’s average price target has fallen from 21.25 Canadian dollars to 19.81 Canadian dollars. The decline in the analysts’ average price target indicates weakening segments.

The recent regulatory scandal could have prompted analysts to lower their price targets. The new price target represents a return potential of 82.9% from its stock price of 10.83 Candian dollars.

Analysts’ expectations for Cresco

Analysts expect Cresco Labs’ revenue to rise 349.5% to $194.4 million in 2019 and to rise 263.8% to $707.3 million in 2020. We expect the expansion of its operations and the closing of previously announced acquisitions to drive Cresco’s revenues. Also, the opening of its Sunnyside brand stores and omnichannel sales could boost the company’s sales.

Stock performance

This year, Cresco has outperformed its peers and the broader equity market. Year-to-date, the company’s stock has returned 17.1%, while the S&P 500 Index has increased by 16.6%. During the same period, the stock price of CannTrust Holdings (TRST) (CTST) has fallen 60.7%, while Cronos Group (CRON) has returned 8.0%.

CannTrust has been facing compliance issues with Health Canada, which led to a fall in its stock price. To learn more, please read CannTrust: More Compliance Issues, Stock Fell.

On August 8, Cronos Group reported its second-quarter earnings. The company had outperformed analysts’ revenue expectations. However, its core operating loss expanded during the quarter. During the earnings call, Cronos Group’s management announced that its operating losses could rise in the second half of this year. This announcement led to a fall in Cronos Group’s stock price.

CNBC host Jim Cramer is optimistic about the cannabis sector. To learn more about his views, please read Jim Cramer Thinks Cannabis Is Back in Action.

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Hand holding marijuana leaf ( Cannabis sativa indica )

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