Is Canopy Growth Stock still a buy for 2020?

<p>Canopy Growth (NYSE: CGC) looked like it would turn around. The shares rose nicely from their low levels and the CGC share moved well to start in 2020.

Source: Shutterstock

In fact, a number of cannabis stocks traded better to start the year. There were some who did not gather, and they were really the ones to be avoided. When the CGC share moved nicely, we said that it was a speculative position that we were willing to have, provided that the support remained in place.

But a worrying trend has developed. Even as the broader market continues to climb to new highs, the CGC stock fails to do so. It is a relative weakness and it is not something we want to see if we are looking for a long position. While we are following better-than-expected results, it is struggling to maintain any upward momentum. There is no panic, but there are some concerns regarding the pricing measure.

Break down the growth of the canopy

Is it possible that after such a big rally to start in 2020, that the CGC share simply takes a break? Yes it’s possible. But if that’s how it works now in the midst of a plethora of market-wide buyers, how will it behave when these buyers turn to sellers?

Also, let’s not pretend that this is a blue-chip company that says Microsoft (NASDAQ: MSFT), a name that galloped higher into the summer and traded sideways for several months before breaking out and cruising to new all-time highs. .

In fact, the CGC stock is the opposite. Its volatile existence became even more pronounced as stocks fell from more than $ 40 in June to less than $ 15 in November. Yes, it’s fleeting. But is there a possibility?

As the United States and other parts of the world crawl toward legalizing cannabis products for both drug and recreational use, sales continue to increase as well. But to survive, a company needs scale and until it gets there, it can be burdened with losses. Many names in the space need time to come to profitability, something that CGC shares have – for now.

With $ 2.7 billion in cash and $ 3.56 billion in current assets at just $ 425,800 in short-term debt, CGC shares should be able to survive for a while. When the new management team settles with Constellation Brands (NYSE: STZ) which owns a large chunk of stock, many have the right to choose this speculative game for a 2020 recovery in cannabis stocks.

However, buying Canopy Growth blindly and hoping that the share price recovers is a bad thing. Incorrect risk / reward and lack of discipline is exactly what caught investors in CGC stocks who bought it at $ 40 or $ 30 and thought it could not be cheaper, just to see it eventually down to $ 13.81.

Trading in CGC shares

The CGC share is far from an arrangement down here. For all we know, the bottom will fall out again just like in November, when equities fall to new lows. The latest action looks like in December, where stock pop, trend lower, then pop again to new recent highs.

I would have felt much better if that pattern of the CGC stock had not broken below all of its large moving averages during recent trading sessions. After flirting with a failure to hold short-term uptrend support (blue line), equities gaped higher than all of these measures in their post-profit action.

During the main moving averages and upward trend support, it would be a negative development, especially after positive measures after the result. But in the end, longs can remain in this speculative game as long as the CGC stock is above $ 17.50.

Only know when to unplug. Lack of discipline to do so is what turns a loss of $ 2 per share into a loss of $ 7 per share, a decline of about 35% from current levels. From here, I would like to see Canopy Growth clear its high income and put $ 26 back on the table. Over $ 26 resistance and the $ 28 to $ 30 zone are possible upside targets.

Conclusion: CGC is a respectable speculative game with upward potential. However, it does not deserve (and does not have) the benefit of the doubt. If the technology breaks down, I’m out.

Bret Kenwell is the director and author of Future Blue Chips and can be found on Twitter @BretKenwell. At the time of writing, Bret Kenwell had no position in any of the above securities.

Tags: , , ,