Enterprise value-to-sales ratio (EV/sales), compares the total value of a company to its annual sales, gives investors a quantitative metric of how much it costs to buy a company’s sales. The measure expands on the price-to-sales ratio (P/S), which uses market cap rather than enterprise value in its calculation. EV/sales ratio is recognized to be more accurate than the often-used P/S ratio as the latter fails to consider a company’s debt in its valuation. EV to-sales ratio values vary by industry. The lower the EV-to-sales ratio relative to the industry average, the more likely investors are to reap the benefits of an undervalued company.
Within the cannabis industry, data from 113 Canadian cannabis stocks indicated an average estimated EV/Sales ratio of 20.3x in 2019 and 5.9x in 2020. WeedMD, Inc. (TSX-V: WMD) (OTCQX: WDDMF) (FSE: 4WE), a producer and distributor of cannabis products for both medical and recreational markets, is expected to deliver substantially lower measures relative to the industry average. Based on the Company’s July 15 closing share price, WeedMD’s EV/Sales ratio is projected to be 4.3x in 2019 and 1.0x in 2020.
WeedMD’s quantitative measures and recent expansion moves puts the Company in a promising position for investors. Last month WeedMD said it finished up the outdoor planting of over 20,000 fully-rooted cannabis plants at its Strathroy, Ontario property. The Company is one of the first licensed producers in Canada to begin outdoor grow operations with its first harvest expected in October of this year. Just a day later, the Company announced it became the first licensed producer to be included in Canada’s Shoppers Drug Mart and TruTrace Technologies’ medical cannabis verification project. The pilot program uses TruTrace’s blockchain-based platform, StrainSecure, to confirm the origin and quality assurance of cannabis products.
WeedMD owns and operates two facilities: a 158-acre greenhouse and outdoor facility in Strathroy, Ontario and a 26,000 sq. ft. extraction and processing facility in Aylmer, Ontario. The Company has 136,000 square feet of licensed indoor and greenhouse production space and is expected to have a total footprint of more than 550,000 square feet of indoor and greenhouse production online in 2019.