We came across a bullish thesis on Cronos Group Inc. (CRON) on Raging Bull Investments’ Substack by Jake LaMotta. In this article we will summarize the bulls’ thesis on CRON. Cronos Group Inc. (CRON) share was trading at $2.26 as of Sept 17th.
A cannabis-growing operation in a large, industrial greenhouse.
Cronos Group represents a compelling investment opportunity, given its recent financial performance and substantial growth prospects. The company’s Q2 results highlight its strong position and strategic advantages, despite a 20% increase in share price since March, indicating robust underlying progress.
In the latest earnings release, Cronos reported a notable 46% year-over-year increase in net revenue, reaching $27.8 million. This growth reflects a solid performance in a challenging market environment. The company’s gross margin improved by 700 basis points to 23%, signaling enhanced operational efficiency. Although EBITDA remains negative at -$11 million, it improved by 31% compared to the previous year. Positive cash flow from operations amounted to $1.7 million, a significant turnaround from the -$11.8 million reported a year ago. The company’s substantial cash reserve of approximately $800 million provides a significant margin of safety and future investment potential.
Valuation-wise, Cronos Group is currently trading at a relatively low multiple compared to its peers. With an enterprise value to next twelve months (EV/NTM) sales ratio of less than 1x, the stock is undervalued relative to other players in the industry, which typically trade around 2x. This discrepancy presents a favorable entry point for investors. The company’s strong growth trajectory, driven by increased sales volumes and successful brand positioning with Spinach, supports the argument for a higher valuation.
The potential for margin expansion is considerable, particularly if cannabis prices in Canada stabilize and the excise tax is reformed. Removing the excise tax could significantly enhance Cronos’ gross margins, potentially raising them to around 42% from the current 23%. This improvement would be a major boost to the company’s financial performance and valuation.
Looking forward, Cronos Group is well-positioned to capitalize on both domestic and international growth opportunities. With the Canadian cannabis market expected to grow and the potential for expansion into new markets, Cronos stands to benefit significantly. The combination of strong revenue growth, improved financial metrics, and strategic investments in operational efficiency makes Cronos an attractive investment with substantial upside potential. The current valuation, coupled with the company’s growth prospects, suggests a promising risk/reward scenario for investors.
Cronos Group Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 12 hedge fund portfolios held CRON at the end of the second quarter which was 11 in the previous quarter. While we acknowledge the risk and potential of CRON as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CRON but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.