Why Canopy Growth Corp. Might Crash in 2017

Canopy Growth Corp. (TSX:CGC) is facing upside resistance right now, and this could be the start of a crash, as traders start to get impatient with the stock.

| More on:
The Motley Fool

Canopy Growth Corp. (TSX:CGC) is no longer the volatile stock it was a month ago, and investors might be considering the company as a long-term hold now. But before you go and scoop up shares with the intent to hold them for the next few years, wait until the ridiculous valuation corrects itself. Because it will next year, and volatility will pick up once new rumours start coming in.

Canopy looks to have a fantastic growth strategy, and the proof is in the pudding. The last quarter was terrific; the company saw an 18.8% increase in sales and a whopping 47% increase in the total number of patients. Going into 2017, you can count on Canopy to make more acquisitions to better position itself as the world leader in marijuana production. The management team knows what it needs to do to grow, and it’s firing on all cylinders.

Sure, the company’s growth strategy is great, and the industry is just emerging, but what about valuation?

I’ve mentioned in the past that the stock is a day trader’s playground, and if you’re a long-term investor in the stock, then you could get hurt. Nobody knows what the true value is of the stock right now, as there are just way too many variables right now. Uncertainty is too high, and if you invest in the company, you’re basically taking a speculative gamble.

Volatility will pick up in 2017, and there’s a better chance of the stock crashing than soaring like it has this year. Investors are starting to get cautious, and there’s a ceiling of resistance that has formed. If one piece of bad news comes in, it could be what is needed for all the dominoes to fall. Traders in Canopy were quick to enter the stock, and you can bet that they will be quick to exit too on any sign of weakness.

I believe we’ve seen peak Canopy for the short term and a nasty correction could be in store in 2017. The stock could crash as much as 50% on any form of bad news that scares traders that hold the stock. This news doesn’t even have to have a direct impact on the company’s top or bottom line. It just doesn’t matter because anybody in the stock is not considering the long-term fundamentals right now.

If you’re itching to get a piece of Canopy Growth Corp. and are bullish on the marijuana industry, then wait. I know it can be hard, but you’ll thank yourself after the traders get impatient with the stock.

With the stock flat-lining at the $10 level, you can count on this to happen, since most people that own the stock can’t think past a horizon of a few months. The stock just needs one small push to fall off the cliff.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any stocks mentioned.

More on Investing

Gold bars
Metals and Mining Stocks

Gold Stocks That Could Soar if the Fed Pauses Rate Hikes

In choppy waters, two gold heavyweights look too good to pass up right now given their lowered entry points, dividend…

Read more »

Clean energy
Energy Stocks

Better Buy: Renewable Energy or Uranium Stocks?

The world is shifting towards clean energy sources, creating investment opportunities in the renewables sector. What's a better bet: environmental…

Read more »

retirees and finances
Energy Stocks

These 3 Stocks Can Help Make You Richer by Retirement

Future retirees can be rich in their sunset years with the help of three distinguished dividend-payers on the TSX.

Read more »

A worker uses the cloud for paperless work. tech
Tech Stocks

Why I Think Constellation Software (TSX:CSU) Stock Has Market-Beating Potential

Constellation Software (TSX:CSU) could outperform the market over the next few years.

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Investing

Got $5,000? These Are 2 of the Best TSX Growth Stocks to Buy Right Now

Canadian investors with some extra cash on hand should look to snatch up TSX growth stocks like goeasy Ltd. (TSX:GSY)…

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

Retirees: 2 On-Sale TSX Dividend Stocks to Buy Now for Passive Income

These top TSX dividend stocks now offer 6% yields.

Read more »

Electric car being charged
Investing

Forget Rivian: This Canadian EV Stock Is Cheaper and Safer

If you're still tempted to buy EV stocks, Magna International (TSX:MG) is probably safer than Rivian (NASDAQ:RIVN).

Read more »

Payday ringed on a calendar
Dividend Stocks

New Investors: The 3 Best TSX Dividend Stocks for Monthly Cash

New investors looking for monthly dividend cash are in luck! Here are three attractive Canadian dividend stocks for growth and…

Read more »