Canopy Growth (TSX:WEED) Stock Is Down 14% in the Last Month: Should You Buy?

Canopy Growth Corp. (TSX:WEED) (NYSE:CGC) stock still has big downside risk. We can wait for a more attractive entry point, as the risks in the market and to Canopy Growth stock price are mounting.

| More on:
edit Cannabis leaves of a plant on a dark background

Image source: Getty Images

In the context of what’s going on in the market today, i.e., trade uncertainties, an inverted yield curve, a heavily indebted consumer, and general global malaise, a 14% drop in the stock price of Canopy Growth Corp. (TSX:WEED)(NYSE:CGC) is nothing to be shocked about.

With the Canadian economy seeing slower than expected GDP growth again, this time coming in at 0.4% compared to expectations of 0.7%, we are seeing more and more to be nervous about.

Here are two things that I would keep in mind when making the decision of whether to buy Canopy Growth stock on weakness.

First is the fact that the medical side of the cannabis industry is certainly a defensive business, as we would not expect spending on medical care to be reduced no matter the state of the economy. So that’s the positive.

The second is that Canopy Growth Corp. stock is trading at very high growth/high expectations valuations, which has been a winning combination in the last couple of years or more. Canopy certainly has strong business fundamentals on its side to back it up.

But looking deeper and focusing on it from another perspective, we can see that the type of growth and expansion that Canopy is chasing comes at a price. A market that is more worried and anxious, as we are seeing more of recently, may alter investors’ focus from top line revenue growth, no matter how explosive and impressive it is to bottom line results.

In fact, at the time of writing, the market is down almost 120 points, or 0.74% today (Friday). In this type of market, investors will be more risk averse and pay more attention to risks and bottom line earnings.

In the third quarter of fiscal 2019, the company’s loss from operations was $157 million; for the first nine months of the fiscal year, the company had a loss of $1.45 per share.

While this is to be expected, as the company is embarking on a very aggressive growth strategy, it’s nevertheless something investors should watch, as it is falling to the bottom line, reducing earnings and cash flow numbers.

Also, shares outstanding increased dramatically, because of acquisitions and internal compensation.

The fourth-quarter report will be released on June 19.

In summary

In closing, I would like to say that I believe in the cannabis industry and its secular growth trajectory.

Current market weakness will provide us with the opportunity to get into Canopy Growth Corp. at lower prices without feeling like we are buying into a stock held up by straws and euphoria.

Let’s stay calm. Value is being created today.

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 Karen Thomas has no position in any of the stocks mentioned.

More on Cannabis Stocks

A cannabis plant grows.
Cannabis Stocks

TLRY Stock: Here’s What’s Coming in 2023

Tilray Inc. (TSX:TLRY) is geared up for big growth this decade and looks like one of the top cannabis stocks…

Read more »

A person holds a small glass jar of marijuana.
Cannabis Stocks

Canopy Growth Stock: Here’s What’s Coming in 2023

Canopy Growth stock has made a lot of new moves in the last few months, but where is the company…

Read more »

A cannabis plant grows.
Cannabis Stocks

Better Cannabis Buy: Canopy Growth Stock or Tilray?

Only two TSX weed stocks can deliver substantial returns in the highly anticipated growth of the global cannabis market.

Read more »

Medicinal research is conducted on cannabis.
Cannabis Stocks

Is Tilray Stock a Buy in January 2023?

Tilray stock has lost 50% of its value in the last 12 months, in line with its peers.

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Are Cannabis Stocks Still a Thing in 2023?

The whole question of whether cannabis stocks are still relevant in 2023 is an interesting one. Here's my take on…

Read more »

A cannabis plant grows.
Cannabis Stocks

Why Canopy Growth Stock Fell 72% Last Year

Canopy Growth stock is a beaten-up cannabis giant that is trading at a discount compared to historical multiples. But is…

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

Is SNDL Stock a Buy in January 2023?

SNDL is among the worst-performing cannabis stocks in the last three years. But is SNDL stock a buy right now?

Read more »

a person watches a downward arrow crash through the floor
Cannabis Stocks

Why Tilray Stock Fell Almost 60% in 2022

Tilray is a Canadian cannabis stock that is down 93% from all-time highs. Let's see if TLRY stock is a…

Read more »