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.
CGC has fluctuated between $10 to $17 per share in the past week. Which brings me to the other reason I reduced my holdings; the stock had been gradually growing up until October this year, but since the beginning of this month it has become very volatile. Being too greedy can lead to losses. So I wanted to reduce my risk and lock in a sure profit. 🙂
I purchased 300 GCG shares for $775 and sold 100 shares for $1,210. I plan to hold the remaining 200 shares until I retire and see how they perform. If CGC becomes worthless in the long run then that’s okay. I’ve already made all my money back plus a decent profit. And if CGC climbs to $50/share some day then I’ll have some extra spending money in retirement, lol. 🙂
About Canopy Growth Corp: CGC is the parent company of licensed cannabis producers Tweed Inc., Tweed Farms Inc., and Bedrocan Canada Inc. with a combined approved growing platform of over 550,000 sq. ft. of production space.
Random Useless Fact:
If something is too good to be true, it probably is.
sell another 100
Haha, maybe I should.
CGC wasn’t the only other pot stock that surged. There were about 5-6 others…I don’t fully understand why at this point, I haven’t seen any news released to make up for it. Have you seen anything yourself?
I haven’t seen any news recently from CGC or the industry, but there has been a lot of journalists covering pot companies over the last couple of months. You can find a bunch on fool.ca for example. Most of the coverage boils down to these pot companies are expensive and investors should be weary about buying them. The U.S. presidential election probably had something to do with hyping things up as well.
I was watching this stock CGC since it was at $4.00..but unfortunately I had most of my money already invested in other stocks which are at a loss right now for me. I seen this stock go upto $17.25 or so..and was kicking myself in the ass..I could have made approx. $12,000 profit in 3 months! 🙁 I am also watching ACB,APH and OGI..all Marijuana stocks..because I believe this is the future for all those “sick” pot heads out there! 😉
I think by 2025 purchasing pot for recreational use would be like buying cigarettes or alcohol. Excise tax would help fund the provincial governments and it will help the overall economy. A few of the weed companies today would still remain, but most would die out due to competition or be bought out. The hard part is figuring out which one’s going to do what.
Could you do a post about how you valued the stock? You thought this one was overbought by 50%, I would be interested to see how one does this.
Since this is a fast growing company I basically took the sales growth and multiply it by 10. Year over year CGC has increased its revenue by 5 times. So 5 times 10 is 50. And 50 times the company’s annual sales of $13 million is $650 million. This is what I think the company should be worth right now.
But today it’s valued at $950 million based on its market capitalization. So I think it should be worth $7/share, even though the market apparently thinks it’s worth $10.50/share.
Anyway, this isn’t the best way to value a stock, but I find it works well enough for me. Of course I would value blue-chip companies like Canadian banks using the P/E ratio instead, with 13x being fairly valued.
Great move! Amazing return in just one year. It was an risky investment, but paid-off really well.
Keep it up!
Yeah, it was a once in a year trade opportunity.
I was actually wondering if and when you were going to talk about CGC. It was definitely the craziest week concerning my portfolio. I was watching constantly and that day where it went up to 17.25 and got halted by the IIROC a few times, was nerve-racking to say the least.
I also sold 1/4 of my holdings in CGC. I got my initial investment back and a little extra. Now, I am going to wait it out.
I do intend to buy a little more once I feel good about how things are playing out with this stock.
I think we made the right decision to take some profit. I can see the stock being sustainable at $5 or even $10 per share. But once it goes past $15 things start to get very speculative. There’s a lot of weed users in Canada but our country’s population is fewer than that of California’s so our growth is limited, unless CGC can expand south of the border which would be nice.
Wow great stuff, I went to the Casino last week, played a slot machine and took $20 and made $80 in 5 minutes…that was a 400% return or a 4X times pay off, covered dinner and gas… on an annualized bases that would be like a ~4000000000000000% return or something insane…
Back to reality,,, if you hold CGC for the long-run 10 to 20 years…(or until they get bought out by a Pharmaceutical Giant) you will be very happy… but buy more than $600…put in $2,000 to $5,000 at around $7 or $8 a share and watch it go up 1000X Plus… now we are talking…forget the day trading…unless you have $1MM+ in capital and can stomach the risk…either way CGC is the market leader and is very likely to go bankrupt anytime soon,,, they are after-all generating Revenue and Margin.
correct… NOT go bankrupt anytime soon….
That would be great if CGC were to get bought out by Pfizer or some one else lol. I hope they pay a high premium for it if that happens.
Nice work man! I got in with Bedrocan before the federal election at $0.80 before they were bought out by tweed to $1.80 and then rebranded to canopy growth. I was kicking myself for selling at $4.50 and was waiting for a correction to get back in! I’m thinking they are experiencing a bubble effect right now and are levelling out near their true mean value. I’m about to get back in at the $8 range because I feel the like growth potential for them is endless and knowing the history of bedrocan and how they can supply foreign markets as well as domestic when the rec hits. I think they are poised to explode onto the market.
I’m continuing to keep an eye on Canopy Growth Corp. I don’t have any plans to buy more but it’s an interesting stock to follow because it’s so volatile. Yesterday CGC dropped by 20% and today it’s up by 25%.
The feds have estimated the industry to eventually be worth 8 billion or so. Should keep an eye on some of the smaller players as well? One of them will most likely ramp up hard to fill some of that void.
That’s a good point. I think there is a lot of potential to make substantially high gains with the smaller companies. But it would also involve substantially greater risk. I don’t know enough about this industry to confidently put money in the smaller players, but I’m interested to see how they perform over the next several years.