In this article, I have evaluated prominent agriculture stocks, Cronos Group Inc. (CRON) and ICL Group Ltd. (ICL), to determine which could generate better returns. After thoroughly evaluating these stocks, I think ICL might be a superior choice for the reasons discussed in this article.
As the global population continues to increase, there is a growing demand for food to meet the needs of the expanding population. Government agencies worldwide have implemented post-pandemic measures aimed at promoting the widespread adoption of agricultural mechanization.
According to the United Nations Organization, by 2050, the world’s population will reach 9.7 billion, which will require global agricultural production to grow about 69% in the span of 2010 to 2050.
Additionally, the increasing automation of commercial greenhouses and growing implementation of the controlled environment agriculture (CEA) concept in greenhouses, in a bid to obtain a higher yield and maintain optimum growing conditions, are expected to be the key factors driving growth in the industry.
The global smart agriculture market is expected to expand at a CAGR of 13.4% until 2030. These industry tailwinds should benefit both companies.
However, ICL is a clear winner in terms of price performance, with 14% gains over the past month compared to CRON’s 4.8% decline. Also, ICL has gained 8.4% over the past three months compared to CRON’s 3.3% decline.
Here are the reasons why I think ICL might perform better in the near term:
Recent Developments
During the recent quarter, CRON unveiled that it built on the early success of its Sonic Lemon Fuel strain by expanding it into the pre-roll category with a 3x0.5g 20-26% THC offering under the Spinach brand.
Conversely, on June 27, 2023, ICL announced the North American launch of a new line of advanced foliar and fertigation solutions under their Nova brand of water-soluble fertilizers. Flagship products include Nova FINISH, Nova PULSE, Nova ELEVATE, and Nova FLOW.
On May 30, ICL announced that it had selected Univar Solutions Inc. (UNVR), a leading global solutions provider to users of specialty ingredients and chemicals, as a distributor of ICL’s Rovitaris textured plant proteins in North America.
Recent Financial Results
During the fiscal first quarter that ended March 31, 2023, CRON’s net revenue decreased 19.5% year-over-year to $20.14 million. Gross profit decreased 65.6% year-over-year to $2.38 million. Also, its net loss attributable to CRON came in at $19.17 million, and net loss from continuing operations per share came in at $0.05.
On the contrary, ICL’s sales came in at $2.10 million for the first quarter that ended March 31, 2023. Its gross profit came in at $828 million. Its net income came in at $294 million and EPS came in at $0.22.
Past And Expected Financial Performance
Over the past three years, CRON’s revenue grew at a 43.9% CAGR. Analysts expect CRON’s revenue to grow by 6.5% this year and 17.5% in the current quarter ended September 2023. However, its EPS is expected to be negative $0.13 this year, negative $0.03 in the to-be-reported quarter ended June 2023, and negative $0.03 in the current quarter ending September 2023.
Conversely, ICL’s revenue has increased at a CAGR of 22.8% over the past three years. Its revenue is expected to fall 24% this year. Its EPS is expected to be $0.56 this year, $0.13 in the to-be-reported quarter ended June 2023, and $0.11 in the current quarter ending September 2023.
Valuation
CRON’s forward P/S multiple of 7.02 is higher than ICL’s 1.12. CRON’s trailing-12-month P/B of 0.61x is lower than ICL’s 1.52x.
Profitability
CRON’s trailing-12-month gross profit margin of 8.53% is lower than ICL’s 48.13%. In addition, CRON’s trailing-12-month EBITDA margin of negative 112.09% is lower than ICL’s 36.61%.
Furthermore, CRON’s trailing-12-month ROCE, ROTC, and ROTA of negative 12.65%, 5.51%, and 13.39% are lower than ICL’s 33.73%, 22.56%, and 15%, respectively.
Thus, ICL is more profitable.
POWR Ratings
CRON has an overall rating of D, which equates to a Sell in our proprietary POWR Ratings system. Conversely, ICL has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CRON has a D grade for Value. CRON’s forward P/S of 7.02 is 67.9% higher than the 4.18 industry average.
On the other hand, ICL has an A grade for Value. ICL’s forward P/S multiple of 1.12 is 7.3% lower than the 1.21 industry average.
Moreover, CRON has a D in Quality. Its trailing-12-month gross profit margin of 8.53% is 84.7% lower than the industry average of 55.58%. Its trailing-12-month asset turnover ratio of 0.07x is 80.6% lower than the industry average of 0.35x.
In contrast, ICL has a B grade for Quality. ICL’s trailing-12-month gross profit margin of 48.13% is 74.2% higher than the industry average of 27.62%. Its trailing-12-month asset turnover ratio of 0.81x is 9.7% higher than the industry average of 0.74x.
Among the 26 stocks in the Agriculture industry, CRON is ranked #25, while ICL is ranked #4.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Stability, Momentum, and Sentiment. Get all CRON ratings here. Click here to view ICL ratings.
The Winner
The agriculture industry is growing exponentially with the rising need for food due to the growing population globally.
Moreover, rising investment in innovative agricultural machinery should boost the industry. Industry players such as CRON and ICL should benefit from industry tailwinds.
However, given CRON’s low profitability and elevated valuation multiples, ICL might be the better buy.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Agriculture industry here.
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ICL shares were trading at $6.66 per share on Friday morning, up $0.05 (+0.76%). Year-to-date, ICL has declined -6.16%, versus a 20.22% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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