Earlier this year, I did an analysis on the most volatile stocks on the TSX in 2017, and I thought it would be good to do a similar review of marijuana stocks over the past 12 months, which seem to have been very unpredictable lately.
While pot stocks as a whole have been up significantly over the past year, in 2018 we’ve seen the bulls and the bears battle it out, leading to a bit of a roller-coaster ride for marijuana investors.
Canopy Growth Corp. (TSX:WEED)(NYSE:CGC), for instance, is up around 7% since the start of the year, and that’s much better than rivals Aurora Cannabis Inc. (TSX:ACB) and Aphria Inc. (TSX:APH), which are down 33% and 48%, respectively.
Given how volatile some of these stocks have been, it’s a bit concerning for investors, as getting in at the wrong time could have a significant impact on your returns.
For my analysis, I also included Shopify Inc. (TSX:SHOP)(NYSE:SHOP), which I consider to be a fairly volatile stock just by seeing its price movements, and BCE Inc. (TSX:BCE)(NYSE:BCE), which, in my last analysis, was found to be the safest stock to invest in among those that I reviewed.
To assess volatility, I looked at each stock’s coefficient of variation (CV), which is calculated by dividing its standard deviation by the average stock price for the year. The smaller the CV, the less volatile that the stock is.
Below are my findings:
|Canopy Growth||Aurora Cannabis||Aphria||Shopify||BCE|
|Coefficient of Variation||45%||48%||38%||19%||5%|
The TSX, for comparison purposes, had a CV of just 3%.
What does this data tell us?
By including BCE in this analysis, it helps to put into perspective just how more volatile these other stocks have been in comparison to it. Consider that both Aurora and Aphria had higher standard deviations, yet their combined averages would still not even make up half of BCE’s average price.
Another interesting finding was that Shopify, which seems to be very volatile from what I’ve seen, is still nowhere near as erratic as pot stocks have been. At 19%, it has seen a lot of swings over the past year, but it’s nowhere near as bad as the ride that cannabis investors have been on.
It’s important to note that volatility doesn’t mean that an investment on its own is risky; it is just a measure of the swings the stock price has taken. Aphria, for instance, has been the worst-performing pot stock of the three on this list, but its CV is lower.
The reason for that is Aphria has been on a more persistent down trend and hasn’t seen the spikes in price that Aurora and Canopy Growth have benefited from.
As appealing an investment as marijuana stocks may appear to be to some investors, there’s plenty of reason to be a bit hesitant. It hasn’t been a smooth ride for cannabis investors, and with a lot of change still taking place in the industry, it’s not likely that will change any time soon.
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. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and SHOPIFY INC. Shopify is a recommendation of Stock Advisor Canada.