Wednesday, 13 November 2024
by BD Banks
Cronos Group (NASDAQ: CRON) stock jumped 9.4% through 11:30 a.m. ET Tuesday after beating Wall Street forecasts for Q3 earnings this morning.
Heading into the report, analysts expected Cronos to do $24.8 million in sales in Q3, and to lose money — $0.01 per share. Cronos delivered positive surprises on both the top and bottom lines, however, with sales approaching $34.3 million and a profit of $0.02 per share.
Sales surged 38% year over year at the Canadian cannabis company, and Cronos noted that its “Spinach” brand of marijuana is now the No. 1 recreational cannabis brand in Canada. In medical marijuana, Cronos’ “Peace Naturals” brand tops the market for that product in Israel — and CEO Mike Gorenstein predicts even more gains as international demand … in markets like Germany, the U.K., and Australia … continues to rise.”
Capitalizing on this demand, Gorenstein said his company “operates more efficiently and effectively than ever before,” and promised “long-term margin improvement” — a promise Cronos delivered on in Q3, by delivering its first bona fide net profit since mid-2021.
So can Cronos keep that performance up?
Turning to guidance, Cronos said it’s still expecting to cut operating costs by $5 million to $10 million this year, “primarily driven by savings in general and administrative, sales and marketing, and research and development.” Management further stated a goal “to drive profitable and sustainable growth over time” (emphasis added), but did not specifically promise any profits this year. Indeed, despite the surprisingly good Q3 result, Cronos remains unprofitable over the first three quarters of this year.
Worse, peering into the future, most analysts who follow Cronos don’t see the company turning consistently profitable — ever! Looking as far out as 2033, forecasts see nothing but net losses for Cronos.
Long story short, unless I’m missing something big here, Q3’s surprise profit appears to be a fluke, not a change in Cronos’s long-term prospects. For this reason, investors are probably best advised to view today’s windfall profits as a good opportunity to exit the stock.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Cronos Group. The Motley Fool has a disclosure policy.