Investors who have owned stocks in the last year have generally experienced some big gains. In fact, the SPDR S&P 500 (NYSE: SPY) total return over the last 12 months is 47.3%. But there is no question some big-name stocks performed better than others along the way.
Cronos’ Disappointing Road: One company that has been a lackluster investment in the last year has been Canadian cannabis producer Cronos Group Inc (NASDAQ: CRON).
Cronos battled a difficult Canadian cannabis market throughout 2020. In February, the company reported an impressive 133% sales growth. Adjusted EBITDA losses in the company’s international business narrowed, while U.S. losses widened.
Cronos also recently announced that it could launch lab-grown cannabis by the end of 2021. Assuming the quality is comparable to the existing product, lab-grown cannabis could potentially significantly reduce production costs for Cronos, helping improve the company’s bottom line. Cronos reported a $73 million net loss in 2020.
Cronos has the financial backing of tobacco giant Altria Group Inc (NYSE: MO), which owns nearly 50% of Cronos. Altria’s support has allowed Cronos to operate with one of the strongest balance sheets in the cannabis space.
However, Cronos shares are also priced at a steep premium to many of its Canadian peers at more than 63 times sales.
At the beginning of 2020, Cronos shares were trading at around $7.90. By the beginning of March, the stock was down to $5.89 after news of COVID-19 spreading in China prompted concerns about a U.S. pandemic.
Cronos bottomed at $4 during the pandemic-driven March sell-off. Fortunately for Cronos investors, the sell-off didn’t last long.
By June, Cronos shares made it back up to $8/13, but the rally stalled at that point until the November U.S. presidential election.
The victory of Joe Biden, a Democrat, and a surprise blue wave gave the party control of both the Senate and House, sending cannabis stocks soaring on optimism that U.S. cannabis legalization may be just around the corner.
Cronos In 2021, Beyond: The stock ultimately peaked at $15.83 in February 2021 during a retail investor-fueled short squeeze before pulling back to around $8.25. Traders may be taking profits on Cronos’ big post-election run. Or they may simply see a lack of progress on U.S. legalization and more lackluster growth numbers from the Canadian market as reasons to be skeptical of the stock in the near term.
Cronos investors who bought one year ago and held on through the volatility have still made a decent return. In fact, $1,000 in Cronos stock bought on April 14, 2020, would be worth about $1,378 today.
Looking ahead, analysts are expecting only modest gains for Cronos in the next 12 months. The average price target among the 10 analysts covering the stock is $8.45, suggesting 12.7% upside from current levels.
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