Cannabis stocks tend to share one thing in common. These companies often have some of the most incredible 5-year stock charts, and I’d invite investors to zoom out on the chart of Canopy Growth (TSX:WEED) stock below to see what I mean.
Canadian legalization approximately five years ago has provided a rather robust window for investors to assess how this experiment has gone, and what the potential repercussions are for other countries looking to follow suit. And while expectations are that by 2028, the global cannabis market will reach US$197.74 billion (equating to a 32% compounded annual growth rate), it’s also true that the growth many investors expected to this point hasn’t materialized.
Let’s dive into whether Canopy Growth stock is worth considering at these levels or if it’s game over for this once-massive Canadian healthcare giant.
Canopy Growth stock sinks on very underwhelming earnings
For Canopy Growth, and its cannabis peers, the general consensus from many experts is that the only way out of this hole may be for these producers to earn their way out. Thus far, Canopy has not shown the ability to do that.
The company’s fiscal third-quarter earnings report was disappointing, to say the least. Revenue plunged 28% on a year-over-year basis, with the company’s losses roughly doubling over the same time frame. This was partly due to some restructuring charges led to the company’s divestiture of its retail business. Accordingly, the short- and long-term impacts of these moves appear to be getting priced into WEED stock here.
On this earnings call, a range of analysts cut their price targets and downgraded the stock. Canopy Growth, like many of its peers, will need to show a path toward profitability at some point. It’s been five years of less-than-stellar growth and ballooning losses. In this kind of market, that’s not a stock most investors want to be invested in.
Bottom line
For investors thinking about Canopy Growth stock as a potential speculative buy at these beaten-down levels, such a bet ought to be made with capital investors don’t mind losing. This is a stock that’s lost more than 70% of its value on a year-to-date basis and roughly 98% of its value from its all-time high.
Investors appear to have lost faith in Canopy Growth and its ability to grow profitably over time. Without the opening of the U.S. market, Canopy’s business model, which is seeing sales growth turn down, margins compress, and market share losses, is likely to continue to see downside over time. This is a stock that has certainly seen its best days behind it.
