Today, I am very happy to be joined by Steven Cress. In January of this year, Seeking Alpha acquired CressCap Investment Research, a next generation analytics platform for investment professionals that Steven founded and where he worked as CEO. Steven has 30 years of experience in equity research, quant strategies and risk management. Some of the firms he's worked for: Wells Fargo, Northern Trust and Morgan Stanley. Steven is now Seeking Alpha's Head of Quant Strategy.
We wanted to bring him on the show today to give listeners an idea of what these new Quant Ratings and Factor Grades can provide for investors in general, and specifically today we'll be focusing on what these ratings mean for three cannabis stocks: Canopy Growth (NYSE:CGC), Aurora Cannabis (NYSE:ACB) and a smaller company and one that we've covered on this show, Khiron Life Sciences (OTCQB:KHRNF).
- 2:00 - How Steve's background in finance led him to develop his quantitative methodology - how to get timely answers faster; fundamental data is refreshed daily.
- 6:50 - Why CressCap partnered with Seeking Alpha. Wanted to partner with an independent entity, without biases. The partnership is unprecedented in bringing together crowdsourced qualitative analysis with quantitative analysis.
- 10:40 - Describing the quant ratings and factor grades - making it easier for investors to make informed decisions with academic grades based on five core investment styles. All grades are sector relative. Using Canopy Growth as an example. C+ for Value based on 19 financial metrics. Only two have a grade.
- 13:56 - Focusing on Canopy, Aurora and Khiron based on the factor grades. What investors can glean from the ratings - lacking financial data, which signals risk. As it's sector relative, cannabis stocks fall under healthcare, which makes sense given healthcare's outliers in terms of valuation metrics, much like the cannabis sector.
- 18:15 - Importance of value metrics compared to the sector. Ratings go beyond conventional P/E and price to book, instead creating a valuation based on growth and profitability and EPS revisions - not typically looked at for valuation metrics.
- 22:45 - Dearth of data in cannabis sector given that it's in beginning stages. Given inherent risk in cannabis sector, financial metrics are invaluable. Look especially at EPS revision grades, which have not been looking good. Companies have strong revenue growth rates, and EPS is mostly declining. Focus on EBIT growth, price to cash flow or EBIDTA when companies do start reporting. Similar to dotcom bubble - strong revenue growth rates but no underlying earnings.