The 3 Cheapest Cannabis Stocks on the S&P/TSX Composite Index

Cheap cannabis stocks like CannTrust Holdings Inc (TSX:TRST) may be better bargains than their more famous peers.

| More on:
edit Businessman using calculator next to laptop

Image source: Getty Images.

The cannabis sector is not a friendly place for value investors. With nosebleed valuations, spotty earnings and sky-high revenue growth, these stocks are generally more suitable for the growth-minded. But that doesn’t mean that there aren’t some comparative “bargains” among the lot. No, you won’t find any pot stocks that can compete with banks or utilities for cheapness. However, there are some cannabis stocks that are not overly dear at present. And when we factor both price and growth into the equation, these may prove to be better buys than their higher-priced peers.

We can start by looking at the company that’s currently the top of the pile for revenue growth.

Aurora Cannabis Inc (TSX:ACB)(NYSE:ACB)

Aurora made headlines in September by posting 223% revenue growth for Q4. The company also technically posted positive net income for the quarter, although this was mostly attributed to unrealized non-cash gains on marketable securities. To translate that into plain English: the positive net income was not actually a result of profitable operations. In terms of operating income, Aurora is still losing money.

So, why is Aurora one of the cheapest pot stocks around? Well, its price-to-sales ratio of 166 is lower than many stocks in the sector. But more fundamentally, analyst estimates give the stock a forward P/E ratio of 59.75. Should earnings grow in line with analysts’ thinking, this may be one of the first pot stocks to move out of “insanely expensive” territory.

Aphria Inc (TSX:APHA)(NYSE:APHA)

Aphria is easily one of the cheapest cannabis stocks around. With a price-to-sales ratio of 102 and a price-to-book ratio of 2.74, it’s cheaper than Aurora by some metrics. Its trailing P/E ratio of 89 is higher than Aurora’s, but the 5-year forward P/E ratio based on Thomson Reuters data is a mere 29. Like Aurora, Aphria’s earnings largely come from unrealized gains on securities. However, it has posted positive operating income in the past. This stock will be one to watch in the months ahead.

CannTrust Holdings Inc (TSX:TRST)

Last but certainly not least, we have CannTrust, which is probably the most consistently profitable cannabis producer. CannTrust is noteworthy for generating positive operating income, which means it’s making money from its ordinary business operations. This is in contrast to Aphria and Aurora, which have occasionally posted positive net income, but only as a result of unrealized non-cash gains on securities.

CannTrust has the lowest P/E ratio of all TSX-listed pot stocks, sitting at just 46 for the trailing 12-month period. Its price-to-sales ratio is also the lowest in the sector, at 32.9. Its price-to-book ratio is a little higher than that of Aphria or Aurora, at 5.30. However, on the whole, this is probably the cheapest pot stock on the TSX, owing to a mix of favourable value metrics and a more reliable EPS figure than its peers can boast.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned.

More on Investing

money cash dividends
Stocks for Beginners

Where to Invest $10,000 in April 2024

If you've already created a diversified portfolio and are looking for more options from a windfall, here is where I…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »