Recent financial data from Beacon Securities compares key financial metrics across the alcohol, tobacco and cannabis industries, showing that cannabis is set to outpace major players like Coca-Cola (NYSE:KO), Marlboro (NYSE:MO), and Budweiser (NYSE:BUD) in market growth.
Financial Metrics
The EV/Sales ratio, which compares a company's total value, including debt to its annual sales helps investors see the cost per dollar of sales. A lower EV/Sales ratio suggests a company might be undervalued, indicating a potential investment opportunity, while a higher ratio could imply overvaluation.
Beacon's report shows the EV/Sales ratios for 2024 and 2025 as follows:
- Alcohol: 3.6x and 3.4x
- Tobacco: 4.0x and 3.9x
- Consumer Packaged Goods (CPG): 3.4x and 3.3x
- Canadian Licensed Producers (LP): 1.4x and 1.1x
- U.S. Operators: 1.7x and 1.5x
In terms of the EV/EBITDA metric, which compares company value to earnings before interest, taxes, depreciation and amortization, lower numbers indicate better valuation relative to earnings. Here are the projections:
- Alcohol: 11.0x for 2024 and 10.4x for 2025
- Tobacco: 7.5x for 2024 and 7.4x for 2025
- CPG: 15.5x for 2024 and 14.6x for 2025
- Canadian Licensed Producers (LP): 17.1x for 2024 and 12.9x for 2025
- U.S. Operators: 8.0x for 2024 and 6.2x for 2025
Growth Prospects
Meanwhile, the 2023-2025 EBITDA Compound Annual Growth Rate (CAGR) reveals differing growth expectations:
- Alcohol: 6%
- Tobacco: 1%
- CPG: 6%
- Canadian Licensed Producers (LP): 65%
- U.S. Operators: 42%
This means that the cannabis industry, particularly U.S. operators and Canadian licensed producers, appears to be undervalued compared to the alcohol, tobacco and consumer packaged goods (CPG) sectors. Despite having significantly lower EV/Sales ratios, indicating they are currently valued lower per dollar of sales, cannabis companies show much higher growth potential as reflected in their impressive EBITDA growth rates.
Investors may be overlooking the rapid growth and future profitability of the cannabis sector, which is poised to outpace more established industries. This discrepancy suggests a potential investment opportunity in the cannabis market as its growth trajectory continues to rise.
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