Is Cronos the Cheapest Pot Stock to Buy?
Valuations are a touchy subject in the cannabis industry. That's because many pot stocks are wildly overvalued, and investors are still struggling to determine what they're worth today. One stock that could enter the discussion as one of the cheaper options is Cronos Group (NASDAQ: CRON). A stock that's trading at less than seven times its earnings and 1.4 times its book value would seem to tick many of the boxes Warren Buffett-type investors look for. That's where Cronos finds itself today but is the stock really an excellent value?
While many cannabis companies have struggled to turn a profit even once, Cronos has done so in three successive quarters. Over the past nine months, the company's net income totaled a cumulative 1.5 billion Canadian dollars. It's an incredible streak, but it warrants an asterisk next to it.
During those three quarters combined, Cronos incurred an operating loss of CA$75 million on net revenue of just CA$29 million. The company was able to stay out of the red thanks to its other income and expenses. Specifically, Cronos benefited from gains on the revaluation of its derivative liabilities to the tune of more than CA$1.5 billion. That line item has grossly inflated the company's profitability and allowed it to showcase a very attractive price-to-earnings ratio in the process.
Source Fool.com
