Why I Sold 100 shares of Canopy Growth Corp (CGC)
About a year ago I wrote about buying 300 shares of Canopy Growth Corp (CGC:TSE). It is a federally regulated cannabis producer. It caught my attention last year when it became the first marijuana grower in North America to graduate from a venture exchange to be listed on a major exchange (the TSX.) This strengthens the sector and is expected to bring Canopy Growth to international institutional investors. 😀
Last year the company was making about $5 million in revenue, but now it’s making closer to $20 million a year. This figure still falls short compared to the sales of most other TSX listed stocks but it goes to show how quickly this company has grown. The share price more than quadrupled from $2.50 in last November to over $10.00 today. 🙂 Woohoo! This calls for a…
Clearly investors are euphoric over this stock. Canopy Growth has the first mover’s advantage and it’s the largest player of its kind in the budding pot industry. But as a long term investor, I can’t just blindly buy into the hype. I also have to consider the sustainability of the stock’s growth over a long period of time, and Canopy Growth’s track record is currently too narrow for me to get an accurate assessment. I recently reviewed my position in CGC, and decided the stock is now overvalued by 50% compared to its fundamentals. So last week I sold 1/3rd of my holdings in it at $12.10 per share.
Back when I purchased this stock at $2.55/share the price was still worth the risk. But the CGC’s valuation today is a lot higher. The stock is currently trading at a 2018 forward price-to-earnings (P/E) ratio of 448 times. This kind of multiple isn’t unheard of for small and fast growing companies, but a lot of things in the future will have to go right for Canopy Growth to justify it’s currently market capitalization of $1.5 billion. It would be great if the U.S. were to follow Canada and legalize recreational marijuana usage at the federal level, but that could still be decades away if it happens at all. The current shares are factoring in a market that is much larger than what exists today.