Cannabis Stocks Ranked – Price-To-Book Ratio

Here is the list of cannabis stocks and their respective price-to-book ratio compared across from the complete list of cannabis stocks.  Price-to-Book ratio is a metric to help you determine if a cannabis stocks’ value is below that of its respective assets.  If a company has a certain asset level but, market capitalization is lower than these assets, the respective cannabis stock is said to be below value.

Book value represents the amount a shareholder would receive if the company were to be liquidated.  This would be total assets less total liabilities.  Usually, an assets book value is less than its market value.  This is because liquidation usually happens at levels below the market value.  Firms net book value less its costs of carrying for accounting purposes.  This is done via depreciation and amortization.

Having a stock with a valuation below its total equity level could be a potential buy signal.  The lack of a company’s total equity not being realized by the market may be an indication that a company is underutilizing its equity.  And,  this could mean the market simply has not recognized this potential yet.

At the same time, with smaller cannabis stocks, getting consistent input from the market with companies that have yet to consistently grow and report would potentially have a company’s stock be subjected to pressure from selling.  Consistency is key.

Methodology For Determining Price-To-Book Ratio

This chart above is the Price to Book ratio for the S&P500.  Use this as a metric for comparison.  Most cannabis stocks are trading below 1; they are trading below their total equity valuations.  Numbers closer to the 3.92 above would mean that cannabis stocks are price closer to where the broader market.  But, cannabis stocks are also companies that are intensive with capital.

For ease with the information I already have, I used the assets in the format that I have for Total Equity from the Complete List of Cannabis Stocks page.  Market Capitalization is divided by the Total Equity (Multiplied by 1,000,000).  This gives you the ratio of total equity to market capitalization.

YouTube player

Undervalued Companies: Price-To-Book Ratio below 1

Any number below 1 may be considered undervalued.  Those companies significantly below 1 could be considered significantly undervalued.  It may be that since a company has assets well in excess of its market capitalization, management could sell all of the assets and simply return the proceeds from the sale of these assets to the shareholders.

At the same time, another company could acquire the undervalued company because of the upside potential.

It is also important to note that a company whose stock is below 1 does not automatically place the company in the “Undervalued” column.  It may be that there are many factors that would push the stock below its total equity level.  This is up to an analyst to determine the rationale as to why a company is below 1 in the price-to-book value.  It may be that intrinsic value is negative simply because the company is losing money on a regular basis.

Overvalued companies: Price-To-Book Ratio above 1

One important note is that any company whose price-to-book ratio is above 1 may not necessarily be considered overvalued.  After calculating total equity, there is also intrinsic value that could potentially drive the stock higher based upon revenue growth and profit growth driven by improving margins.

Leave a Reply

Your email address will not be published.

Copyright Cannabis Investing Newsletter 2021 - 2022