Stock Analysis

A Look At Auxly Cannabis Group's (CVE:XLY) Share Price Returns

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TSX:XLY
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While it may not be enough for some shareholders, we think it is good to see the Auxly Cannabis Group Inc. (CVE:XLY) share price up 27% in a single quarter. But only the myopic could ignore the astounding decline over three years. The share price has sunk like a leaky ship, down 86% in that time. So it sure is nice to see a bit of an improvement. But the more important question is whether the underlying business can justify a higher price still.

We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.

See our latest analysis for Auxly Cannabis Group

Auxly Cannabis Group isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

Over three years, Auxly Cannabis Group grew revenue at 113% per year. That is faster than most pre-profit companies. So on the face of it we're really surprised to see the share price down 23% a year in the same time period. The share price makes us wonder if there is an issue with profitability. Ultimately, revenue growth doesn't amount to much if the business can't scale well. Unless the balance sheet is strong, the company might have to raise capital.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth
TSXV:XLY Earnings and Revenue Growth January 28th 2021

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

The last twelve months weren't great for Auxly Cannabis Group shares, which cost holders 53%, while the market was up about 3.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 23% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. It's always interesting to track share price performance over the longer term. But to understand Auxly Cannabis Group better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for Auxly Cannabis Group you should know about.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

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