Fight Inflation with this Undervalued Leader

Inflation in America just grew at its fastest pace in 30 years.

The most recent data shows that inflation grew 4.3% in the 12 months ending in August. That’s the highest reading since 1991, more than 30 years ago when George H.W. Bush was in the White House.

Looking forward, inflation is expected to remain high.

Treasury Secretary Janet Yellen expects prices to remain high through mid-2022. Many other well-respected economists and analysts expect inflation to remain high for years.

Investors seeking to fight inflation should take a look at one of the most undervalued cannabis stocks. That’s because value stocks have a proven history of performing well during periods of high inflation.

Here are some more details from the Wall Street Journal.

Many people think of stocks of any stripe as a lousy investment when the cost of living surges because the last time U.S. inflation was a major problem—from the late 1960s through the early 1980s—they went exactly nowhere and lost money in real terms. But companies with real assets, debts that are eroded by inflation and the ability to raise prices can do well and have done so at other times when inflation was elevated.

Even when they didn’t, value stocks were good relative performers. Decades like the 1940s, 1970s and 1980s saw value stocks beat growth amid fairly high inflation. By contrast, decades with low inflation or deflation such as the 2010s, 1930s and 1990s saw the opposite trend, according to data from researchers.

Most investors think of cannabis stocks as growth stocks. That is true because U.S. cannabis companies are reporting incredible revenue growth that is virtually unmatched by any other industry.

However, cannabis stocks have fallen sharply in 2021, placing many deep into value territory. That makes many of the most promising cannabis stocks great value stocks as well.

A Standout Value Cannabis Stock

From the group, one early industry leader stands out.

This stock…

  • is one of the most undervalued U.S. cannabis stocks
  • has a price-to-sales ratio of 2.5 – a sharp discount to peers
  • posted revenue growth of 123% in Q2

Cresco Labs (OTC: CRLBF) is one of the largest cannabis companies in the U.S. and an early industry leader. Headquartered in Chicago, Illinois, Cresco has a market cap of $2 billion and an impressive resume that includes:

  • operations in 10 states
  • 20 production facilities
  • 47 retail licenses
  • 40 owned dispensaries

Cresco has delivered impressive revenue growth. Second-quarter results from mid-August show that Cresco is one of the fastest-growing cannabis companies in the industry. Here are the highlights from the press release.

  • Revenue of $210.0 million, an increase of 17.7% quarter-over-quarter and 122.8% year-over-year
  • Gross profit excluding fair value markup for acquired inventory of $107.0 million, or 51.0% of revenue, an increase of 22.2% quarter-over-quarter and 233.3% year-over-year
  • Net Income1 of $2.7 million, an increase of $26.8 million quarter-over-quarter and $44.4 million year-over-year

That revenue growth is a good reason to like Cresco. But for investors looking to fight inflation, Cresco stands out even more. Cresco is trading at a sharp discount to other growth sectors and its fellow cannabis industry leaders.

Cresco has a price-to-sales ratio of 2.5, a sharp discount to other cannabis leaders.

  • Curaleaf Holdings (OTC: CURLF) P/S ratio of 6.7.
  • Green Thumb Industries (OTC: GTBIF) P/S ratio of 6.8.

When compared to growth stocks outside the cannabis sector, Cresco looks even better.

For example, Tesla (NASDAQ: TSLA) has a P/S ratio of 25. If Cresco had a P/S ratio of 25, shares would be trading around $75.

This lower P/S ratio makes Cresco an attractive value stock. And, according to history, value stocks tend to outperform during high periods of inflation.

Cresco Shares are Down 50% from the 52-Week High

Despite the impressive sales growth and low valuation, Cresco has been weak with the broader cannabis sector in 2021. Shares are trading 50% below the 52-week high. Take a look at the chart below.

Author Michael Vodicka owns shares of Cresco Labs (CRLBF), Curaleaf Holdings (OTC: CURLF) and Green Thumb Industries (OTC: GTBIF).


About the Author & Cannabis Stock Trades

Michael Vodicka is an equity analyst with more than 20 years of experience trading and investing. His research has been featured in some of the industry’s most respected publications. He has been investing and leading investors in the cannabis sector since 2013.

Michael Vodicka

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