For more than a decade, Apple (AAPL -0.89%) has been considered a leader in innovation. The company's iPhone is practically a staple in the U.S., with growth in Apple's wearables, digital music service, and streaming content really beginning to pick up steam. Apple's consistent profitability, its massive war chest of cash, and its general "cheapness" to the broader market have made it one of the most popular stocks to own for a long time.
As of this past weekend, a share of Apple could be had for just 16.3 times next year's forecasted profit per share, according to Wall Street. Although that's historically a bit higher than its five-year average of 13.9 times its forward price-to-earnings (P/E) ratio, it's still less than the S&P 500's forward P/E of 17.7.
These pot stocks offer faster growth and a cheaper valuation than Apple
Of course, even with its strong brand and inexpensive valuation, Apple's days of red-hot sales growth are long gone. That's not the case with marijuana stocks, which are poised to grow at a compound double-digit rate over the next decade. While many remain unprofitable and are a sore sight to fundamentally focused investors' eyes, three cannabis stocks currently offer a lower forward P/E ratio than the mighty Apple.
Trulieve Cannabis: Forward P/E of 9.2
Keeping in mind that Wall Street's consensus estimates are fluid, there's no marijuana stock cheaper than Florida-based, vertically integrated dispensary operator Trulieve Cannabis (TCNNF -6.99%). At just over nine times next year's earnings per share, Trulieve is considerably cheaper than Apple -- and roughly 3,000 other publicly traded companies, for that matter.
The secret sauce to Trulieve's success has been its focus on its home market of Florida. Although Florida has only legalized medical marijuana, the Sunshine State's older population gives medical operators plenty of runway to thrive. Despite pushing into new markets, to date, the company has opened 30 stores in Florida, which has allowed it to gobble up significant market share.
Trulieve Cannabis is also one of a select few pot stocks that's been profitable on a recurring basis for some time. Even though fair-value adjustment on biological assets have helped to boost the company's bottom-line profit, Trulieve would still be substantially profitable on an operating basis without one-time benefits and fair-value adjustments.
Looking ahead, management has stood by its forecast of $380 million to $400 million in 2020 sales, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $140 million to $160 million. This works out to a near-quadrupling in sales, with a more-than-tripling in adjusted EBITDA. Even if Trulieve's 2020 earnings-per-share forecast fluctuates a bit as it ups spending while moving into California, Massachusetts, and Connecticut, it looks to be a bargain.
Valens GroWorks: Forward P/E of 10.3
Another marijuana stock that's growing much faster than Apple but is also considerably cheaper on the basis of forward P/E ratio is small-cap Valens GroWorks (VLNS).
Valens is part of what's arguably been the only cannabis trend that hasn't taken it on the chin since the second quarter began: extraction services. With the launch of cannabis derivatives (e.g., edibles, infused beverages, topicals, and concentrates) just over three months away, growers are actively seeking out third-party cannabis and hemp extraction-service providers like Valens. In return, Valens is providing resins, distillates, and targeted cannabinoids, such as cannabidiol (CBD). Since derivatives generate much higher margins than dried cannabis flower, every grower wants in on this upcoming launch.
This year alone, Valens has snagged a number of significant extraction contracts. In April, it signed a two-year agreement with HEXO to provide resins and distillates on an aggregate of 80,000 kilos of hemp and cannabis biomass. Then, in June, it expanded the size and scope of a two-year agreement with Tilray that will now include 60,000 kilos of hemp and dried cannabis biomass extraction per year. Further, Valens may also provide manufacturing services for gelcaps and tinctures bottles for Tilray.
Valens currently has an annual extraction capacity of 425,000 kilos, but is actively working on expanding its peak processing potential to 1 million kilos per year by the midpoint of 2020. Suffice to say that derivatives are a hot commodity in the cannabis space, and Valens should have plenty of predictable cash flow over the next two years.
Village Farms International: Forward P/E of 15.1
Village Farms' forecasted profitability is a function of the company's three-pronged approach to making money. First, it has an established vegetable-growing business that, while low margin, does provide relatively consistent cash flow and a predictable cost structure. Most marijuana stocks don't have fallback businesses, or decades of growing expertise.
Secondly, Village Farms has a joint venture with Emerald Health Therapeutics (EMHT.F) known as Pure Sunfarms. Village Farms and Emerald Health's first retrofit facility, Delta 3, is already operating at its peak annual run rate of 75,000 kilos per year, with the adjacent Delta 2 facility being retrofit to essentially double peak annual output. All told, Village Farms and Emerald Health should have at least 150,000 kilos of peak annual production capacity, on a run rate basis, by the second half of 2020.
Lastly, Village Farms has two joint ventures focused on planting hemp in the United States. With President Trump signing the farm bill into law in December, the industrial production of hemp, along with hemp-derived CBD, is now legal. The company has already planted about 720 acres of hemp through its joint ventures in 2019, with planting and hemp processing likely to really ramp up next year.
Offering a little bit of everything, Village Farms brings growth and value to the table that Apple simply can't match -- at least on a fundamental basis.