On today’s TSX Breakouts report, there are 58 stocks on the positive breakouts list (stocks with positive price momentum), and 28 securities are on the negative breakouts list (stocks with negative price momentum).
There are four marijuana stocks on the positive breakouts list and discussed today one of these securities - CannTrust Holdings Inc. (TRST-T).
The company is currently profitable, reporting earnings per share of 9 cents in 2017, with explosive earnings growth forecast. Looking ahead to 2019, the Street is anticipating the company will report earnings per share of 48 cents, rising to 66 cents in 2020.
The stock’s market capitalization is just below the $1-billion mark, and as its market capitalization rises, more investors may take note of this profitable little company. The share price is up 9 per cent year-to-date and the consensus target price suggesting there is nearly 33-per-cent additional upside potential over the next year.
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
CannTrust is a licensed marijuana producer with operations in Ontario. The company currently has a hydroponic facility in Vaughan as well as a greenhouse facility in the Niagara region, which is currently under expansion. By mid-2018, the Phase 2 expansion is expected to be completed at its Niagara facility.
Looking forward, management is planning an additional 600,000 square foot expansion at its Niagara plant. It is possible that management may choose to do an equity financing to finance its future expansion plans. In November, the company completed a $20-million bought deal private placement issuing 4-million shares at a price per share of $5. The proceeds were earmarked to finance the expansion project at its Niagara facility that is currently underway.
In a news release issued on April 18, the company announced it was expanding its product offerings to include cannabis vegan-based hard shell capsules, making the company a market leader, “CannTrust now offers the widest variety of cannabis products of any licensed producer in Canada.”
This is important to note because the company realizes higher revenue from extracts compared to dried cannabis flower. For instance, in the fourth quarter the average net selling price per gram for extracts was $9.34, while the average net selling price per gram for dried flower was $8.14. In the fourth quarter, extracts accounted for 64 per cent of the company’s cannabis sales.
The company will be reporting its first quarter financial results before the market opens on Fri. May 18 and will be holding its Annual General Meeting on Tues. May 22. Last quarter, the company reported record revenue of $7-million and reported earnings per share was 8 cents.
Dividend policy
The company does not pay its shareholders a dividend.
Analysts’ recommendations
This small-cap security, with a market capitalization just under the $1-billion mark (at $925-million), is covered by eight analysts. All eight analysts have buy recommendations. More specifically, five analysts have “buy“ recommendations and three analysts have “speculative buy” recommendations.
The eight firms providing research coverage on CannTrust are as follows in alphabetical order: Bloom Burton & Co., Canaccord Genuity, Cormark Securities, Echelon Wealth Partners, Eight Capital, GMP Securities, Haywood Securities, and Mackie Research Capital.
Revised recommendations
In April, Martin Landry, the analyst from GMP Securities, reduced his target price to $16 from $17.
In March, Jesse Pytlak, the analyst from Cormark Securities, raised his target price to $11 from $9.
Financial forecasts
The Street is forecasting strong earnings growth for the company. The consensus revenue estimates are $76-million in 2018, $177-million in 2019 and $275-million in 2020. EBITDA (earnings before interest, taxes, depreciation and amortization) is anticipated to come in at $18-million in 2018, $58-million in 2019, and $112-million in 2020. The consensus earnings per share estimates are 12 cents in 2018, 48 cents in 2019, and 66 cents in 2020.
Earnings revisions have been positive. For instance, four months ago, the consensus EBITDA estimates were $46-million for 2019 and $82-million for 2020.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 8.2 times the 2020 consensus estimate. In comparision, Canopy Growth Corp. (WEED-T) is trading at a EV/EBITDA multiple of over 16 times and Aphria Inc. (APH-T) is trading at a multiple of 10 times.
The average 12-month target price is $13.25, implying the share price has nearly 33 per cent upside potential over the next 12 months. Individual target prices vary widely and are as follows in numerical order: $9.50 (the low is from the analyst at Canaccord Genuity), two at $11, $12.50, $14.25, $16, $17.50, and $18.50 (the high on the Street is from the analyst at Echelon Wealth Partners).
Insider transaction activity
There has been recent selling activity reported by insiders.
On April 13, Norman Paul, who sits on the board of directors, sold 100,000 shares at a price per share of $6.5002 for an account in which he has indirect ownership (The Norman Paul 2013 Family Trust). The previous day, he also sold 100,000 shares. After these transactions, the account held over 5.2-million shares.
On April 5, fellow board member Mark Dawber sold 20,000 shares, trimming his portfolio’s position to 30,000 shares.
On April 2, director Mitchell Sanders divested 118,000 shares at a price per share of $7.43 for an account in which he has indirect ownership (Cajun Capital Corp.), reducing the account’s holdings to 1,036,116 shares.
There were no transactions reported by insiders during the months of February and March.
Chart watch
Technical analysis is limited given the stock’s limited trading history. The stock was listed on the Canadian Securities Exchange in August 2017 and graduated to the Toronto Stock Exchange in March 2018.
That being said, year-to-date, the stock price has increased 9.3 per cent, an attractive return relative to some of its peers. In comparison, its larger cap peers have delivered the following returns: Canopy Growth Corp. (WEED-T) is up 8.8 per cent, Aurora Cannabis Inc. (ACB-T) is down 17.7 per cent, Aphria Inc. (APH-T) is down 33 per cent, and MedReleaf Corp. (LEAF-T) is up 18.9 per cent.
Looking at key resistance and support levels, the share price has a major ceiling of resistance around $12, near its record closing high of $11.95 set earlier this year (on Jan. 23). On a pullback, the stock price has downside support around $8, near its 50-day moving average (at $7.76).
The small-cap stock has reasonable liquidity. The three-month historical daily average trading volume is over 600,000 shares.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.