The Canopy growth stock is practically on fire.
If investment in marijuana is the flavor of the season, this is undeniably the poster boy.
The stock has been hitting new milestones almost every week.
From huge intra-day gains to phenomenal monthly wins, the list is practically never-ending.
From December 2017 to March 2018, Canopy Growth has gained over 50%.
The average stock volume in this period is around 600,000 on an intra-day level.
Over a 6-month period, Canopy Growth has clocked close to 200% in terms of sheer value.
Even on a year to date basis, the stock has clocked more than 3.5% gains.
So whatever time frame you may look at, Canopy Growth screams of gains.
This is what makes it such a hot stock in the marijuana space.
It undeniably represents the best type of opportunity given the boom in Cannabis trade.
But the phenomenal gains in Canopy Growth are also triggered by fundamental growth too.
The scale at which the company has been growing contributed to its appeal as well.
But you have to remember that Canopy Growth is not the only growth stock in Marijuana space.
In fact, the whole sector is buzzing at the moment.
Investors are buying all kinds of stocks, from localized players to big market leaders with an international presence.
But the question is what is so special about the stock that it is the current market leader?
Well, this is a multi-textured proposition without a clear yes-no answer.
So let’s undertake a quick lowdown on the fundamental growth catalysts for the stock.
After all, these are the key factors that will help you take a long-term stance on the stock.
This will help you gauge the relative risk potential in investing in Canopy Growth.
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Canopy Growth Stock: Business Basics
Canopy is one of the biggest marijuana growers in Canada.
Both in terms of production as well as the sale of marijuana, they are the market leader.
In fact, Canopy Growth stock deserves a big pat on the back for the extent of expansion.
The company has tactically diversified its opportunities in a comprehensive manner.
Needless to mention that this has gone a long way in sealing its position as the top market player.
In fact, they have been able to gain inroads in medical marijuana space as well as recreational consumption.
They are set to reap the direct advantage of rising demand for marijuana.
Medical usage of marijuana and legalization in many countries is going to be the next trigger.
Given the extent of their expansion, it is expected to help the company consolidate its position.
Strategic acquisition is one of their most common approaches to expand their reach.
They have been steadily expanding their global reach through gradual takeovers.
One of the most talked about acquisition is undeniably Mettrum Health.
Canopy Growth has tactically targeted companies that can successfully add to its efficiencies.
As a result of this inorganic growth, they have been able to add production facilities regularly.
Moreover, it has also helped them to gain a better market share and bigger chunk of patients.
As a result, Canopy Growth stock now serves almost 50% of medical marijuana patients.
They also entered a pact with the Goldman Group to further help them with their growth.
This will help them to increase the total number of facilities to meet the expected demand.
The CraftGrow program is another trigger abetting growth.
This is an online sales platform that helps increase reach to customers.
This has allowed a forward-looking sales outlook too.
Canopy Growth Stock: Earnings Prospect
The earnings outlook is another important parameter.
This is perhaps one of the most definitive measures of long-term prospects.
You can easily identify whether the Canopy Growth stock can maintain the dream run.
You can use a variety of parameters for determining this.
But one of the first factors will be the EPS or the earnings per share estimates.
While the estimates for 2018 is still in negative zone at -0.14, there is good news.
2019 and 2020 estimates project a significantly positive picture.
The company’s EPS is likely to turn positive and touch 0.59 levels by 2020.
Even in terms of overall valuation, PE ratio is seen around 550x by 2019.
Profitability is also likely to take a turn for better going forward.
The net margin is seen improving from projected -25.0% in 2018 to 3.92% in 2019.
It is also likely to be cashflow positive by end of 2019.
That means the company will have better operational cost solutions going forward.
The sales numbers too in absolute terms are set to exceed $700 million by 2019.
That goes on to reiterate the positive business outlook for the company.
It also points to the success of their ongoing strategy.
This is a multi-pronged approach that helps them gain customers and production units.
Perhaps this inorganic approach is the best way to harness the phenomenal demand growth.
It also braces them up to approach a greater and wider customer base.
Higher sales also indirectly hint at better profitability.
In short, the earnings weave a positive picture going forward.
It gives readers every reason to buy the Canopy Growth stock.
Higher sales and larger facilities may also help rationalize input expenses.
Moreover, the return on equities too is likely to light up going forward in 2019.
One reason why I will bet on Canopy Growth stock is the future expectation.
The company is undeniably a market leader in its home market.
But the management is not simply resting on its laurels.
The company has realized that the only way to fuel growth is expansion.
Organic expansion of operation is time-consuming and also very expensive.
So the question is what is the way out?
So the company has quite rightly identified the inorganic route.
Whether in local or global markets, this is one of the most definitive growth catalysts.
It helps them to seal their future scopes.
Canopy Growth is taking some constructive steps going forward.
It has planned out its global aspirations in a definitive pattern.
Apart from the plans to grow within Canada, it is spreading its wings to other markets.
It is in the process of forging several long-term partnerships around the world.
Be it South America, Europe or Australia; the Canopy Growth umbrella is slowly spreading everywhere.
The company has already bought a distribution firm in Germany.
It has also increased footprint in Spain as well.
It has also undertaken joint ventures in Jamaica, Chile and Brazil.
But that is not the only extent of their expansion.
They are even spreading their operations to Australia.
The best part is Canopy is marketing its product under a single banner.
So in terms of presence and visibility, this brand enhances the appeal.
Needless to mention, the Canopy Growth stock price too reflects this sentiment.
In fact, international presence is seen as a major trigger to sustain growth.
It is considered to be a powerful medium to push growth and maintain profits.
The global aspirations also highlight the strong business fundamentals.
This, therefore, makes the Canopy Growth stock one of the top buys.
Association with Constellation Brands
There are many factors that project Canopy Growth stock in the positive light.
But the primary concern is that marijuana is a commodity after all.
This recent spike and dream run of the stock will stop somewhere.
Canopy Growth stock will not continue to rise endlessly.
At a certain point of time, marijuana will cease to be the hot property that it is now.
People will not be lining up to invest in marijuana stocks the way they are doing now.
The concern is that the pure marijuana firms will be hard hit by this whenever it happens.
The question is what is the way out?
One of the simplest answers is business diversification.
This will make sure that the business is not entirely dependent on marijuana.
It gives the company some breathing space when marijuana demand seems to be waning.
But for that companies will have to take steps.
However, if you look at some of the top marijuana stocks, they are mostly pure plays.
It means they are directly dependent on marijuana for their future revenue.
Well, this is a matter of great concern for most marijuana stocks.
But perhaps this is why Canopy Growth’s association with Constellation Brands is talked about.
In fact, Constellation’s over $240 million stake in Canopy gives it a unique recognition.
It gives Canopy Growth a decided advantage over its peers in the space.
It will not be wrong to say that it gives it an endorsement like no other.
Constellation is developing plans to introduce cannabis beer.
This is not just a unique concept; it gives Canopy the much-required diversification.
It provides an opportunity where Canopy can rely on other channels of revenue flow.
This is seen as a major boost for sustaining long-term profit as well as sales.
Marijuana for Recreation
When you are analyzing Canopy Growth stock, you have to weigh cannabis usage comprehensively.
Cannabis is used primarily for two purposes.
One of them is, of course, medical marijuana but the other one is also important.
Marijuana is an important recreational tool as well.
It is very popular in party circles.
The good news is that the Canadian recreation market is set to receive another big boost.
Cannabis legalization across Canada will be formalized by July 2018.
This means that the demand in this segment of the market is set to rise.
Needless to mention that heralds positive development for Canopy Growth.
Canadian Government is likely to formally launch the recreational market in few months.
Most provinces in Canada are pushing to meet the July 2018 deadline.
This has undeniably improved the sentiment on street.
The market is more convinced about Canopy Growth meeting this deadline.
Just the gaming plans of the various states spiked the stock to $30 levels.
This is particularly striking after the stock fell in early December on the back of these concerns.
At that point in time, the market was unsure about Canopy Growth meeting this deadline.
But all that has changed as of now.
Canopy Growth stock has come out as a clear winner with a foolproof growth strategy.
Experts have valued the Canadian recreational around $5 billion.
Canopy Growth as you know very well is the market leader in Canada.
Needless to mention, that they will command a significant chunk of the market.
So this is going to impact the basic business parameters.
Be it the earnings or valuation; they will fact in the additional scope.
In many ways, these kinds of news elements are further driving the stock higher.
As a result, it is hitting fresh highs.
Volatile Price Movement in Canopy Growth Stock
However, all said, you must remember that the Canopy Growth Stock is extremely volatile.
In fact, the market is showing signs of weakness and worry.
Its acquisition-based growth is well appreciated, but the concern is whether that is sufficient.
This has led to particularly wild swings in the stock price.
Sentiment has varied considerably from concern to worry to finally conviction.
Therefore the stock price has also reflected this turmoil amongst investors.
Prices have oscillated in a wide range from $7 a share to $35 a share.
Therefore this stock is not for the light-hearted ones at all.
If you take a position in this stock, you have to be prepared for extreme moves.
There will be steep spikes and sharp dives in overall pricing.
Therefore you have to follow the volatility indicators and understand what they suggest.
It becomes very important to properly interpret the market signals.
As the old saying goes, you have to make the trend your friend.
Bucking the trend may not be the best bet to play this marijuana stock.
You have to carefully assess the price moves and take a decision accordingly.
That alone will insure long-term gains for you from this stock.
Houseviews On Canopy Growth Stock
Last but not the least important are the houseviews on Canopy Growth stock.
Well, most brokerages are OVERWEIGHT Canopy Growth.
The average target price too has been moving higher.
It has gradually inched higher and higher from the initial $24 target.
Currently, the target price for the stock is well above $30.
That means experts see further room for expansion.
The stock has been rising at a breakneck speed, whether you consider the 6-month price movement or the 12-month one.
Both the charts indicate good times ahead for canopy Growth Stock.
Both the earnings and EPS depict better projections.
As a result, they are looking at the stock with a positive bias.
There is only one sell call amongst the 20+ brokerages that are polled.
Therefore, it makes the case for better exit points later.
But the sentiment is waning with the gradual passage of time.
Investors and the overall market have to understand that present levels look stretched.
This is primarily because of a mismatch in the financials.
On the one hand, it has a market cap close to $5 billion.
But the company’s 2017 sales are less than $40 million.
As a result, quite obviously there are many who are questioning the stock’s actual worth.
A lot of expectation is riding on Canada legalizing marijuana for the recreational market.
That alone is likely to perk up demand, and the company is better on higher sales from there.
But all that is still in the realms of calculation and expectation.
The actual outcome will be visible only after the product is launched.
But the current price is undeniably a stretch given the low-key sales amount.
The question is how you chart out your investment strategy going forward.
That will give you a better idea of profit.
Conclusion: Canopy Growth Stock No Doubt Reflects the Absolute Value and Potential
But at current levels, the valuation is distinctively stretched.
However, over the next few years, the stock has potential to deliver sharp returns.
One simple solution is to leave your Canopy Growth stock unattended for now.
Investors can use any potential plunge to buy the stock.
Remember what Warren Buffett says, ‘buy when there is panic.’
So whenever in the course of the cycle, the Canopy growth stock slips, buy them for the longer term.
In this way, you will be able to expand your existing investments significantly.
Don’t forget that this stock is best poised to deal with the market dynamics.
Therefore look for temporary blips to buy the Canopy Growth stock.