GMP Downgrades Cronos On Steep Valuation, Still Thinks It Has 'Bright Outlook'

Cannabis stock Cronos Group, Inc. CRON has been one of the hottest stocks in the market in 2019, gaining 115 percent year-to-date. However, one analyst said Tuesday Cronos stock has come too far too fast.

The Analyst

GMP analyst Martin Landry downgraded Cronos from Buy to Hold and reiterated his C$24 price target (about $18 in U.S. dollars) for the stock.

The Thesis

Landry said nothing has changed about his core bullish outlook for Cronos and its business, but the huge run-up in share price in the past year has forced him to the sidelines on the stock.

He said Cronos has a "bright outlook," but its current share price already reflects generous international growth assumptions and roughly $1 billion in U.S. sales by 2024. Landry said Cronos stock has by far the highest valuation of any stock in their coverage group.

“In our view, the company needs to backfill its valuation with capital deployment into the US market, increase its penetration in the Canadian recreational market and continue its international expansion,” Landry wrote in the note.

Longer term, he said Cronos has a bright outlook, and the company’s management team has an impressive track record of capital efficiency. He also said the recent Altria Group Inc MO investment creates significant opportunities for Cronos and was a game-changer for investors.

In the near term, Landry said Cronos doesn't have enough supply to meet the demands of the Canadian market, and there are limited opportunities to deploy capital in the U.S. market. Landry said long-term investors are likely wise to wait for a better entry point rather than jumping into the stock after the big run.

Price Action

Cronos stock traded lower by 10 percent at $20.80 Tuesday morning. Shares rose 11 percent during Monday's session.

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