Cannabis stocks have been performing horribly since legalization, and they’ve destroyed many portfolios along the way. It hasn’t even been companies like CannTrust that have been cratering. There’s been a widespread sell-off across the industry. Canopy Growth (TSX:WEED)(NYSE:CGC), which, for a while, looked like it could do no wrong and continued to be one of the top stocks in the industry, has taken a beating over several months.
Whether you want to blame it on the firing on Bruce Linton or that pending acquisition of Acreage Holdings that may never come to fruition, the reality is that the stock would likely be declining anyway. With profits being hard to come by in the industry and the promises of high growth now being questionable, many investors have simply lost trust in the entire cannabis industry.
That doesn’t mean that Canopy Growth won’t be able to recover, but it won’t be easy and will likely take several well-performing quarters to be able to win back investors. As promising as the opportunities are for Canopy Growth, whether it’s the hemp market in the U.S. or the Acreage deal, that’s just not enough anymore; investors are looking for results. And until there’s some more substance behind Canopy Growth and other pot stocks, the industry may not see a recovery take place for some time.
Another high-growth stock to consider
The cannabis industry’s struggles have made pot stocks very high risk, but that doesn’t mean that cannabis investors need to resort to buying bank stocks. There are still some very good growth opportunities out there on the markets. Great Canadian Gaming (TSX:GC) is a great example of a company that has a lot of potential growth without a lot of the same risks that cannabis stocks have.
Although the company has struggled this year, it’s also a better bet to recover. For one thing, while the company may have fallen as a result of some underperforming quarterly results, Great Canadian has still been able to post a profit in each of its past four quarters. Its growth opportunities are a lot more tangible with the company securing some impressive deals that span many years into the future.
Another key differentiator for the stock: it isn’t heavily overvalued. With a market cap of around $2.5 billion, it’s nowhere near Canopy Growth, which, at one point, was worth around $20 billion. Even at $9 billion, the cannabis stock is still a very expensive buy. Great Canadian, which has profits, has been trading at some very modest values, including a price-to-earnings multiple of 12 and a price-to-sales ratio of around two.
There just hasn’t been the same excitement around Great Canadian to propel its stock to the same premiums that cannabis stocks have enjoyed. But its low price could make it a bargain buy, especially with a lot of growth already in the company’s pipeline.
Cannabis investors should consider other industries to invest in to diversify their holdings and to ensure that they don’t have too much exposure to pot stocks. It’s not too late to switch paths and look for other good growth stocks to invest in, and Great Canadian could be one of them.
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.