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Canopy Growth Corporation (TSE:WEED), a large-cap worth CA$18b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an abundance of stock in the public market available for trading. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Using the most recent data for WEED, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
Does WEED Produce Much Cash Relative To Its Debt?
WEED has built up its total debt levels in the last twelve months, from CA$8.4m to CA$946m , which accounts for long term debt. With this rise in debt, WEED currently has CA$4.5b remaining in cash and short-term investments to keep the business going. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of WEED’s operating efficiency ratios such as ROA here.
Can WEED pay its short-term liabilities?
At the current liabilities level of CA$412m, the company has been able to meet these obligations given the level of current assets of CA$5.1b, with a current ratio of 12.32x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors.
Does WEED face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 13%, WEED's debt level may be seen as prudent. This range is considered safe as WEED is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is very low for WEED, and the company also has the ability and headroom to increase debt if needed going forward.
WEED’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for WEED's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Canopy Growth to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for WEED’s future growth? Take a look at our free research report of analyst consensus for WEED’s outlook.
- Valuation: What is WEED worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether WEED is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.