My post about Auxly Cannabis (TSX: XLY) hit a nerve.

AI Summary

The author presents a DCF model for Auxly Cannabis, arguing that the stock is significantly undervalued based on conservative growth, margin, and WACC assumptions.

XLY.TO — LONG Auxly Cannabis is undervalued because its current market price of C$0.12 is significantly below the author's conservative DCF-derived fair value of C$0.29. The thesis relies on the company's improving EBITDA margins and low capital expenditure requirements as a branded CPG firm. Even under a punitive bear case scenario, the author calculates a fair value of C$0.18, suggesting a margin of safety. The main risk is the inherent volatility and sector-specific challenges associated with a penny stock.

DCF PRICE: C$0.29/share Current price: C$0.12 Upside: 139%

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A thread on r/ValueInvesting has 15,000 views since yesterday.  
  
So I'm publishing the full DCF model. Every assumption. Every number. Judge it yourself.  
  
REVENUE ASSUMPTIONS  
— FY2024A: C$122.3M (+21% YoY)  
— FY2025E: C$148.0M (+21%)  
— FY2026E: C$170.2M (+15%)  
— FY2027E: C$190.6M (+12%)  
— FY2028E: C$209.7M (+10%)  
— FY2029E: C$226.5M (+8%)  
  
Growth decelerates every year. This is not a bull case. This is "what if the company just keeps doing what it's already doing, but slower."  
  
MARGIN ASSUMPTIONS  
— Gross margin: 46% (2024A) → 54% (2026E) → 55% (2027E+)  
— SG&A: 29% of revenue (2024A) → 22% (2028E+)  
— EBITDA margin: 18.7% (2024A) → 30.9% (2026E) → 33.7% (2029E)  
  
For context: Q3 2025 actual gross margin was 56%. I'm modeling 54-55%. The company is already beating the forecast.  
  
FREE CASH FLOW  
— 2025E: C$27.0M  
— 2026E: C$31.9M (includes C$11M capex for international expansion)  
— 2027E: C$42.6M  
— 2028E: C$48.5M  
— 2029E: C$50.4M  
  
CapEx peaks in 2026 at C$11M then drops to C$7M. This is a branded CPG company with existing production infrastructure. It doesn't need heavy capital investment.  
  
VALUATION  
— WACC: 14% (deliberately punitive for a penny stock)  
— Terminal growth: 3%  
— PV of FCFs (2025-2029): C$123.3M  
— Terminal value: C$471.8M  
— PV of terminal value: C$279.3M  
— Enterprise value: C$402.7M  
— Less net debt: C$15M  
— Equity value: C$387.7M  
— Shares outstanding: 1,350M  
  
DCF PRICE: C$0.29/share  
Current price: C$0.12  
Upside: 139%  
  
Stress test for the skeptics:  
  
Bear case — WACC 18%, terminal growth 2%, EBITDA margins flat at 28% → still C$0.18. That's 50% upside.  
  
The stock would have to fall another 40% to be "fairly valued" under the most punitive assumptions I can build.  
  
CROSS-CHECK: EBITDA MULTIPLES  
— LTM EBITDA \~C$42M  
— At 6x: C$0.18/share (+46%)  
— At 8x: C$0.24/share (+98%)  
— At 10x: C$0.30/share (+150%)  
  
Tilray trades at 5.6x with worse margins. Organigram at 13x. Canopy and Cronos don't have EBITDA to value.  
  
I'm using 14% WACC on a company with 31% EBITDA margins and 0.6x net leverage. Most analysts would use 10-12%. At 12% WACC, the DCF spits out C$0.36.  
  
Conservative at every line item. Still says the stock is worth 2.4x the current price.  
  
Full spreadsheet available for anyone who wants to tear it apart. I welcome it.  
  
Disclosure: Long XLY. Not investment advice. All data from public sources. DYOR.

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