Why I’d Invest in Canopy Growth Corp. Over Aurora Cannabis Inc. Today

Canopy Growth Corp. (TSX:WEED) hasn’t been impressed by some of the acquisitions that it’s seen in the cannabis industry.

| More on:

Aurora Cannabis Inc. (TSX:ACB) has been in pursuit of pot companies for the past several months. Its most recent acquisition of MedReleaf Corp. (TSX:LEAF) was the biggest that we’ve seen in the industry so far, and months earlier it was involved in another deal that was, at the time, the biggest. Aurora seems intent on being the biggest pot stock in the industry, and it’s been willing to acquire companies regardless of value.

Its key competitor Canopy Growth Corp. (TSX:WEED) is unimpressed with these moves and recently said that this is not an approach that it would be taking. CEO Bruce Linton stated in an interview with BNN Bloomberg that “The valuations for us to acquire are relatively higher than the assets we think we’d be getting.” He believes the valuations aren’t a little high either: “These deals that I’m seeing out there, it kind of proves that you can actually spend a dollar to buy a dime.”

Why Canopy Growth is right

Buying a company for the sake of buying and growing market share simply isn’t a good reason to acquire. Price is a big factor, and when you’re paying a big premium for a business for no discernible reason, it becomes a waste of cash, or, in the case of Aurora’s recent acquisition, shares.

In its most recent purchase, Aurora paid around 75 times MedReleaf’s sales, which is a big premium by any standard. Unfortunately, this has been the norm for cannabis stocks, and last year it wouldn’t have been uncommon to find several stocks that were being valued at more than 100 times their sales. Valuations have simply gotten out of control, and even with pot stocks struggling for much of 2018, prices could still come down even further.

That being said, Canopy Growth itself is not a low value either, as it too trades at about 100 times its sales. However, it is right in its stance to avoid these bad deals and stay away from high-profile ones that are going to fetch a big price tag.

Why I’d invest in Canopy Growth over Aurora

If I were to be investing in marijuana, I’d be purchasing Canopy Growth instead of Aurora. A big reason for that is that I’m a big believer in a company’s management, and a I’m not a fan of companies that are very aggressive when it comes to acquisitions, especially when prices are very high. When it comes to investing, whether you’re an individual or a corporation, you should be looking for value, and that goes hand in hand with the price that you pay for a stock or a company.

By avoiding this game of acquisitions, Canopy Growth is demonstrating a more methodical, calculated approach to its strategy. That’s not to say that the company hasn’t been involved in any acquisitions, but it’s trying to be smart about the ones it makes. Canopy Growth’s stock has grown more than 20% year to date, and that’s impressive in a year when pot stocks have been falling out of favour with investors.

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 David Jagielski has no position in any of the stocks mentioned.

More on Investing

Arrowings ascending on a chalkboard
Tech Stocks

Why I Think Nuvei Stock Has Market-Beating Potential

Given its growth initiatives, expanding addressable market, and attractive valuation, I believe Nuvei has the potential to outperform the broader…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Need Passive Income? Turn $5,000 Into $23.85 Every Month

If you're looking for passive income that comes in like a paycheque, this dividend stock provides that to you along…

Read more »

A worker drinks out of a mug in an office.
Metals and Mining Stocks

5 Things to Know About Nutrien Stock in December 2022

Trading at heavily depressed multiples, Nutrien stock is a great opportunity, as it delivers solid financial results and an optimistic…

Read more »

A shopper makes purchases from an online store.
Tech Stocks

Shopify Stock Rose 15% in November: Is it a Buy Today?

Shopify (TSX:SHOP) stock rallied 15% this month but is still down 69% year to date, so should investors worry that…

Read more »

Man holding magnifying glass over a document
Investing

The 3 Most Oversold TSX Stocks to Watch Before 2023

Many oversold stocks are merely victims of market circumstances and potentially profitable bargains when they seem downtrodden.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

A TFSA Contribution Room of $88,000 and 1 Dividend Aristocrat Can Make You $172,330 Richer

A high-yield Dividend Aristocrat in the energy sector is a suitable holding for Canadians with $88,000 available contribution rooms in…

Read more »

Upwards momentum
Investing

Year-End Sales Tracker: 3 Growth Stocks Going for Value Prices

Growth stocks like Aritzia (TSX:ATZ) are on discount.

Read more »

Dollar symbol and Canadian flag on keyboard
Investing

2 Canadian Stocks I’ll Be Buying Hand Over Fist in 2023

Alimentation Couche-Tard (TSX:ATD) and another top growth stock could increase dividends in 2023.

Read more »