CGC

We rate Canopy Growth Corp (CGC) as Avoid with a composite score of 39.8/100 at a current price of $1.16. The stock falls in the bottom quintile of our universe across key quantitative factors, and the multi-factor weakness suggests a high probability of continued underperformance.

The rating is primarily driven by strength in value (62th percentile) and quality (46th percentile), which together account for the majority of the composite score. Offsetting weakness in momentum (26th percentile) and investment (28th percentile) tempers our overall conviction. We assign a No Moat rating (16/100), High uncertainty, and Poor capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs; the path to profitability. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Canopy Growth Corp holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 39.8/100 places it at rank #3557 in our full 7,333-stock universe. At $350M in market capitalization, Canopy Growth Corp is a small-cap player in the Manufacturing space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 18%, though momentum at the 26th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 30% (-12.8pp vs sector) narrow to operating margins of -31% (-32.3pp vs sector) and net margins of -76.8%, yielding a gross-to-net conversion rate of -258%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $1.16, Canopy Growth Corp is trading near fair value based on current fundamentals. Our value factor score of 62/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at EV/EBITDA of 16.0x (at a premium), P/B of 0.6x, P/S of 1.6x. We evaluate these multiples in the context of both absolute levels and sector-relative positioning to form our valuation view.

We assign a High uncertainty rating to Canopy Growth Corp. Key risk factors include elevated market sensitivity (beta of 1.47), current negative profitability (net margin -76.8%), below-average price stability (30th percentile). The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 1.47); current negative profitability (net margin -76.8%); below-average price stability (30th percentile). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 30th percentile and quality factor at the 46th percentile provide a quantitative summary of the overall risk landscape.

We identify limited risk mitigants at this time, which contributes to our high uncertainty assessment. Investors should monitor for improvement in balance sheet metrics, margin stability, and business predictability that could warrant a downgrade in our risk assessment over time.

We rate Canopy Growth Corp's capital allocation as Poor. Key concerns include low returns on equity (-30.0%), negative profitability, weak asset returns (ROA -20.6%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — Canopy Growth Corp significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, Canopy Growth Corp receives a Avoid rating with a composite score of 39.8/100 (rank #3557 of 7,333). Our quantitative framework assigns a No Moat (16/100, trend: stable), High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 38/100.

Our analysis does not support a constructive view on Canopy Growth Corp at this time. The combination of limited competitive advantages, high uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.