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.