The cannabis company delivered another strong quarter when it released earnings earlier this month.
Green Thumb Industries(GTBIF 3.19%) is a top cannabis company with a presence in more than a dozen states across the country. The business has multiple brands that sell lotions, edibles, pre-rolls, and other products. Focused on quality and premium offerings, the business generates better margins and cash flow than other cannabis companies.
Like many other pot stocks, however, Green Thumb Industries stock has been struggling, and investors may be growing frustrated with the investment. The company recently reported encouraging quarterly results, but that failed to generate a strong rally. Is now the time to load up on the stock, or should investors sell before it falls further down?
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Green Thumb has posted a profit for six straight quarters
On March 1, the company released its fourth-quarter results. Revenue of $243.6 million for the period ending Dec. 31 was up 4.2% from the previous quarter, and the company posted a profit of $22.8 million, for a profit margin of 9.4%.
It marks the sixth straight period in which Green Thumb has posted a profit and the eighth straight period in which the company also generated positive cash from its operating activities. Both profitability and positive cash flow are a bit of a rarity in the cannabis industry.
To put this into perspective, consider that when cannabis producers often report earnings, they focus on profitability in terms of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). That often includes several adjustments to true accounting income, or "net income" as it is called in the income statement. It can mean millions of dollars' worth of adjustments that help prop up an adjusted bottom line. When Canadian-based marijuana company Aurora Cannabis says it's close to profitability, it's talking about adjusted EBITDA, not net income.That's what makes Green Thumb's streak of positive net income all that more impressive.
And what's even more remarkable is that this comes as the cannabis company has been expanding its operations. In 2021, Green Thumb opened and acquired a total of 22 stores. During the year, it generated revenue from 73 retail stores from across 14 states, including top markets like California and Florida.
Is Green Thumb Industries a cheap buy?
In the past year, shares of Green Thumb have fallen by more than 50%. And while that is by no means great, the stock has outperformed the Horizons Marijuana Life Sciences ETFduring that time, which has crashed by over 60%. Investors are likely less bearish on Green Thumb given its strong financials and continued growth.
When looking at the price-to-sales ratios of some of the top multi-state marijuana companies in the country, Green Thumb does rank on the high end in terms of valuation:
GTBIF PS Ratio data by YCharts
While it's not a huge premium over the other multi-state operators, investors need to decide whether or not it's worth paying more for the stock than for top companies such as Curaleaf Holdings andTrulieve Cannabis.
Should you buy Green Thumb stock?
Overall, Green Thumb looks to be one of the safer and better cannabis companies you can invest in today. Even if it is trading at a slightly higher premium than its peers, there's still plenty of hope for the stock to generate some strong returns over the long run. Multiple brokerages have lowered their price targets for the stock this year, but they're still all at $30 or more -- which suggests shares of the company could double in value.
That's not a stretch given that the legal cannabis market is growing at a compounded annual growth rate of more than 21% until at least 2025, according to research company Technavio. And with Green Thumb already having a strong presence across the country and being profitable, it's in excellent position to benefit from the long-term growth opportunities in the sector.
Marijuana legalization in the U.S. may still be years away from being a reality, but if you're willing to buy and hold, then Green Thumb could make for a solid growth stock to hang on to or add to your portfolio today.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns and recommends Green Thumb Industries and Trulieve Cannabis Corp. The Motley Fool has a disclosure policy.
