Why Canopy Growth Corp (TSX:WEED), at Over $20 Billion in Market Cap, Is Heavily Overpriced

Canopy Growth Corp (TSX:WEED)(NYSE:CGC) has been off to a strong start in 2019, but can it continue?

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Canopy Growth (TSX:WEED)(NYSE:CGC) has been on the rise again and is now at a market cap of more than $22 billion. It was not too long ago that I was wondering whether it was worth a $10 billion valuation, and here it is now at more than double that amount. The challenge with looking at market cap is that it can change significantly from one day to the next, since it is directly affected by share price. And in just the past month, Canopy Growth’s share price has risen by an astounding 75%, as it got a boost from news that it would be expanding into the U.S.

The stock was already overpriced before the increase, and now its valuation has gotten even more ludicrous. Here are two big-name stocks that have smaller market caps than Canopy Growth.

Shaw Communications (TSX:SJR.B)(NYSE:SJR) has a market cap of just $13 billion and is nowhere near Canopy Growth’s valuation today. Although Shaw has generated more than $5 billion in revenue over the past five quarters and a profit to go along with it, it has not generated the same excitement from its investors. Instead, during the past year the stock has declined by more than 3%.

While online streaming has created a lot of competition for the cable company, it has still proven to be a strong brand, and it’s one of the top providers in the country. It also pays investors a dividend of 4.5%. Although Shaw may not have cannabis-style growth over the next few years, its development of Freedom Mobile will ensure that it has an avenue where it can significantly increase its sales over the years. In its most recent quarter, sales were still up a very respectable 8% from last year.

Saputo (TSX:SAP) is another notable stock that is below Canopy Growth’s value, coming in at market cap of around $15 billion. Saputo is a global company that has sales in dozens of countries around the world. While Canopy Growth might be making deals to secure agreements in different parts of the world, Saputo is many steps ahead and already generating strong streams or revenue from all over.

During the last 12 months, Saputo’s sales have reached more than $12 billion. The company has consistently posted a profit, and it has done a good job of generating stable but strong growth over the years. While its dividend may not be as high as Shaw’s, it still provides investors with a modest 1.7% payout. The diversity of Saputo’s products and the regions it sells to makes it a great option for investors looking for something that actually has substance.

Bottom line

While some investors can tout gains achieved from owning Canopy Growth stock, gamblers can also claim bigger wins from casinos. That doesn’t mean that it’s a prudent or safe investment to make today. Marijuana stocks have been very volatile during the past year, and it wouldn’t be a surprise to see another correction happen. Investors who think Canopy Growth will only continue to rise in price might be well advised to look at what happened to Bitcoin when the hype ran out.

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. Saputo is a recommendation of Stock Advisor Canada.

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