When searching for a pot stock to buy, the value should be precedent. Within the cannabis industry, it can at times be difficult to find the true value of a cannabis company. Investors tend to value different businesses differently depending on several factors including investor style and the terms in which one is investing. But, with cannabis stocks, the emphasis should be on the long term. Projections continue to illustrate large growth over the next few years as countries continue to figure out the legal status of cannabis. Because of this, there are still a lot of parts of the industry that have yet to be figured out. This is quite a good sign for investors as it leaves a lot of room for future growth.
Currently, the focus tends to be on only a few large companies at the top of the industry in terms of market cap. These pot stocks set the example for where the industry is going. But, with so much volatility in the market, using standard metrics to determine value can be difficult. So much has changed amongst pot stocks in only the past few years. And, it would be a safe bet to say that more things will continue to change moving forward. All we can do is use the research tools at our disposal, to find value where others may not see it.
Finding Value in Large Pot Stocks
Last year, we witnessed massive inflation of pot stock prices. This meant that heading into 2020, it was difficult to see where values were actually meant to be. But, the large losses we have taken in the past six months means that many pot stocks are trading well below their market value. Take Aphria (APHA Stock Report) for example. The company has been touted as being one of the most prominent cannabis companies in the industry. But after shedding more than 60% of its value in only a year, many investors lost faith.
The company is still trading at almost 2 times its projected sales for 2021, but is this enough to make Aphria a pot stock to buy? Maybe not, but it does show that the company could be headed for an interesting future if it is able to keep up its momentum. The company is struggling from a large amount of capital it spent on producing vast cultivation facilities. Even so, Aphria is more profitable than almost all of its competitors (albeit still not turning a profit.) So moving forward, Aphria could be an interesting pot stock to watch, but maybe not for a few months.
A Pot Stock With a Capital Stockpile
Cronos Group (CRON Stock Report) is another one of the largest pot stocks in the industry. The company currently trades at around 1.3 times it’s free-flowing cash. This is quite good, but considering it received a massive influx of capital, this number doesn’t mean as much as it should. The partnership with Altria (NYSE:MO) promised big things for Cronos Group. But at this point, we have not witnessed too much production as a result of this deal.
The main factor that the company has going for it is its sheer size. This means that the company should be able to stick around long enough to see the industry change. Hopefully, by that time, we will have witnessed some profitability for Cronos Group, but truly, only time will tell.
These two pot stocks represent only a small fraction of the value that exists in the industry. It’s up to us as investors to scope that value out, but when the industry is changing so quickly, that can be difficult. So for now, these two companies are a great place to begin ones search for a pot stock to watch.