In September, the Toronto Stock Exchange launched the TSX 30, a ranking of the top 30 performers listed on the TSX over a three-year period based on dividend-adjusted share price appreciation. The three-year returns were measured as of June 30, 2019. The 2019 edition of the TSX 30 includes both emerging and established companies.
Most of the companies in the list are in the mining and cannabis sector, with a few in the tech sector, but there are no financial stocks.
Canopy Growth leads the way, with share price appreciation of 1,823% as of June 30, more than double technology firm Shopify at 883%. Village Farms, an agriculture company, follows Shopify closely with a return of 868%.
Why these three stocks have performed so well
Let’s begin with the leader, Canopy Growth. What helped to boost its stock price is the strong revenue growth it saw in the past three years. Its revenue increased 214% to $39.9 million in fiscal year 2017, which ended on March 31, 2017. Revenue rose by 95% to $77.9 million in fiscal 2018 and by 191% to $226.3 million in fiscal 2019.
Canopy also benefited from the hype surrounding marijuana legalization that happened a year ago. Further, investors welcomed favourably the announcement of a $5 billion investment in Canopy by alcoholic beverage giant Constellation Brands in August last year.
Shopify has also grown very fast in the last three years. It’s now bigger than eBay and is a competitor of Amazon. Its revenue for fiscal year 2016, which ended on December 31, 2016, grew 90% to $389.3 million. Revenue rose by 73% to $673.3 million in fiscal 2017 and by 59% to $1.073 billion in fiscal 2018.
Shopify has launched many innovations such as Wholesale, Shopify Pay, Shopify App Store, and Chip & Swipe reader. The e-commerce company is growing globally, currently powering over 800,000 businesses in approximately 175 countries.
Village Farms is a hydroponic grower of tomatoes, peppers, and cucumbers that transitioned to growing cannabis in 2018. The strong performance of the stock over the last three years mainly comes from a huge rise in price at the beginning of 2019, during which the share price rose from $5 to almost $22 in about three months.
In February, Village Farms’s cannabis joint venture Pure Sunfarms entered a supply agreement with Ontario to supply its stores with cannabis products for the recreational market. This was Pure Sunfarms’s first supply agreement with a provincial government distributor of cannabis. In addition, Village Farms shares got a boost from the stock uplisting from the over-the-counter exchange to the Nasdaq.
Should you buy these three stocks now?
While it’s interesting to look at the past to see which stocks have performed best over a certain period of time, you shouldn’t base your investing decisions on past performance. This is because strong past returns don’t guarantee strong future returns. A stock may have had a strong performance in the past three years, but it could have a weak performance in the next three years.
Usually, stocks that are reaching very high returns are very volatile, which means that not only can they rise very fast, but they can also plunge sharply if things are starting to go bad. If we look at Canopy’s, Shopify’s, and Village Farms’s performances since June 30, 2019, only Shopify is in the green with a return of 11%. Canopy and Village Farms have plunged by 42% and 18%, respectively.
While I believe these three stocks have good long-term prospects, I don’t think they are buys right now. There is a strong probability of a market crash in 2020, and since cannabis and tech stocks are risky, I expect them to underperform next year.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Stephanie Bedard-Chateauneuf has no position in any of the stocks mentioned. David Gardner owns shares of Amazon. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Amazon, Shopify, and Village Farms International, Inc and has the following options: short October 2019 $37 calls on eBay and long January 2021 $18 calls on eBay. Shopify is a recommendation of Stock Advisor Canada. Village Farms is a recommendation of Hidden Gems Canada.