With one exception, overpriced cannabis stocks have failed to impress investors on the Toronto Stock Exchange (TSX) during the bear market selloff. Supreme Cannabis Company (TSX:FIRE) climbed 18% this week to $1.42 per share. The outstanding price-performance coincides with an exciting acquisition announcement and record-breaking earnings guidance.
Don’t let the fear-induced selloffs scare you away from investing and look for solid buy opportunities. As Warren Buffett says, “Be fearful when others are greedy and greedy when others are fearful.” Bear markets are great for separating suitable investments from the bad. Price appreciation during a market selloff is a good sign that a stock may be undervalued or less risky than its peers.
In the case of Supreme Cannabis, it is proving itself to be a real competitor post-legalization. Neptune Wellness and The Green Organic Dutchman have struggled to demonstrate sales and revenue growth following marijuana legalization in Canada. Supreme Cannabis earnings paint a much brighter picture of the profit opportunities in this industry.
I don’t typically like recommending stocks that don’t offer a dividend to serious investors, but Supreme Cannabis is an exception. Given the reliable earnings guidance and the low price, I believe investors should snap up at least 100 shares and not worry about the risk. A $200 investment in Supreme Cannabis today could easily be worth $3,000 tomorrow.
Competitive earnings announcement
On Wednesday, as other cannabis stocks were struggling to excite investors during quarterly earnings calls, Supreme Cannabis brilliantly timed an earnings guidance announcement. The under-the-radar cannabis stock expects to report a 449% increase in revenue on September 17, 2019, for the quarter ended June 30.
Moreover, Supreme Cannabis also expects positive net income for the fourth quarter and record yearly performance. These figures demonstrate that the company can compete in the global cannabis marketplace. Next year should see outstanding revenue growth as Supreme Cannabis scales its production and introduces new, higher-margin products brands.
Truverra acquisition grabs attention
Shareholders were excited to hear that Supreme Cannabis acquired a new subsidiary with international reach. Truverra operates an e-commerce store throughout Europe. Cannabis is a high margin product as is, and cutting out the margin depletion of expensive retail operations augments the industry’s profit potential.
Experienced investors are taking the cost of sales per gram seriously in the cannabis space. Especially in the Canadian market, high costs to cultivate, produce, and distribute cannabis are taking front stage as investors separate the cannabis winners from the losers. A new e-commerce platform tells investors that Supreme Cannabis is a real competitor in the race to build the world’s top cannabis empire.
At below $2.00 per share, value investors are excited to see that a top contender is still underpriced.
Cannabis markets are snowballing, which means that investors still have an opportunity to profit from the newly legal industry. Fortunately, there are still underpriced cannabis stocks which have largely avoided the speculative runs in price as day traders gamble on short-squeezes.
Supreme Cannabis is one of these stocks. Although it doesn’t offer a dividend like the insurance and banking industries, long-term investors should consider adding this stock to their portfolio. An investment of under $1,000 in this stock can quickly return over 1,500% in the next year with minimal downside risk!
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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 Debra Ray has no position in any of the stocks mentioned.