It’s been a long time since I’ve written about a pot stock. Since the cannabis boom went bust many years ago, it’s likely that many readers have also scratched pot producers, such as Canopy Growth (TSX:WEED), off their radars. If it’s been a while since you’ve tuned into the cannabis trade, you’re not alone. These days, WEED shares go for a mere $1.91 per share, a far cry from the more than $677 per share all-time highs hit back in 2018, when investors were growing euphoric over the legalization of cannabis in Canada.
In numerous prior pieces, I warned investors that cannabis was a commodity and that valuations should not be ignored. Fast forward a few years, and here we are, WEED stock, one of the highest flyers back in the day, has lost more than 99.5% of its value. And while it’s tough to catch a bottom, I finally think it’s time to revisit the intriguing cannabis producer now that its shares have probably overswung to the downside.
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Canopy Growth is gaining again after a nice quarter
If you look at the 10-year chart, you’ll see an epic bursting of the bubble. However, if you zoom in a bit, things become more interesting, with shares now up over 30% in the past month. Indeed, the latest round of quarterly earnings was quite impressive.
However, volatility ensued as investors grew quite unsure as to what to do with their shares now that the firm has managed to top expectations on the sales front. While weed isn’t quite selling like pot cakes, I think that the recent bout of strength is difficult to ignore. Indeed, a nice rise in pot sales is remarkable, especially for a company that’s already been forgotten amid the continued implosion in the share price.
New CEO Luc Mongeau noted that the company has been “gaining share in high-demand categories,” which I think is nothing short of promising, especially with the rock-bottom price of admission. While it is still very much possible to lose money with a stock that goes for $1, I think that Canopy Growth is finally worth picking up again. The $646 million company isn’t booming anymore, but shares are oversold, and the latest growth spurt, I think, could be the start of an upward trend. At 0.9 times price to sales and 1.2 times price to book, WEED stock is actually a deep-value play.
Shares look cheap, but prepare for volatility
Of course, heightened volatility is a given, especially since the latest quarter has attracted many contrarian investors looking for a cannabis sector turnaround. With a 2.42 beta, the name is far too choppy for my liking.
However, if you are comfortable with the risk, I’m certainly not against betting on a turnaround, especially now that the trade has gone up in smoke in recent years. It’ll be tough to time a bottom, so I’d suggest nibbling small positions over the next year. If the next quarter impresses, perhaps buying into strength can make more sense than buying into further weakness. Indeed, dip-buying hasn’t worked out very well when it comes to pot stocks.
