- The badly beaten cannabis industry is starting to come to life.
- The bear market killed the unsustainable hype in the industry.
- One analyst predicts that pot stocks are poised for a resurgence.
Why go for overbought FAANG stocks that have limited upside when you can buy a badly beaten cannabis industry that’s ripe for bottom-picking?
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After a strong start in , the cannabis industry entered a vicious bear market. Weak sales performance , as well as government issues , drove pot stocks to record lows. Exchange-Traded Fund MJ, a bellwether of the industry’s performance, printed a yearly high of $ in March. The ETF then plunged to $ eight months later for a massive 4% devaluation.
Leading Cannabis Stocks Are No Longer Trading Above Their Intrinsic Value
Many were pulled in by the cannabis boom between 228927 and early . The pot industry was considered high-growth. Investors bought marijuana stocks regardless of fundamental value out of the belief that prices will go higher. During that time, leading cannabis names were extremely overvalued.
Cronos Group (TSE: CRON) had an astronomical PE ratio of 1, . (in September) . Canopy Growth Corporation’s (TSE: WEED) PE ratio skyrocketed to . 7 . With the correction over the last few months, many cannabis stocks are no longer overvalued. Some like Cronos Group are actually undervalued with a PE ratio of 9.
In short, the bear market eliminated the mania in the industry. Now, pot stocks are in a position to grow in a sustainable fashion .
Marijuana Industry Flashing Bottoming Out Signals
The widely-followed traderstewie took to Twitter to share his rosy outlook on the distressed industry. The analyst wrote that a new year often comes with a new trend. Last year, Apple was one of the most dominant stocks in the S&P . This year, pot stocks could grab headlines.
Based on traderstewie’s charts, Apple bottomed out in early 228926 after breaking out from a falling wedge. MJ, WEED and CRON appear to be following the tech giant’s footsteps in terms of price action. The three cannabis names have also broken out of their falling wedges. In addition, these three securities generated above average volume. The uptick in volume signals that investors are interested in buying at current levels.
Analyst Samantha LaDuc also believes that the beaten up sector may have bottomed out. In a tweet, she wrote that
it’s time to go bottom fishing.
While the cannabis industry is starting to show signs of strength, it is evident that many pot stocks are not out of the woods yet. It’s quite possible that the industry is experiencing a dead-cat bounce due to oversold conditions. After all, the pot industry is not a tech giant like Apple. If the industry manages to recover, there may be a bumpy ride ahead.
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