Is CRON Stock Overvalued?
One of the hands-down strongest performers this year in the marijuana market has been Cronos Group Inc (NASDAQ:CRON). While other marijuana stocks have struggled during the marijuana industry downturn, CRON stock has been able to eke out double-digit gains.
But did this strong Canadian marijuana stock rise too fast?
I believe that the gains we have seen from Cronos stock in the past few months were a little too high and too fast and that, as a result, we’re seeing a correction in the CRON stock value.
The stock lost more than 14% of its value this week, and that’s despite the marijuana industry scoring major legislative victories during that time.
There’s little reason why CRON stock should be performing so poorly, from a news standpoint. Therefore, it seems likely that the market is instead correcting itself after the company’s meteoric rise in 2018.
While the industry as a whole has been beaten down in 2018, Cronos stock stands apart as one of the better performers so far this year.
The company is still up about 27% over the past three months.
Cronos Group stock really began its rise when it announced that it would be listing on the Nasdaq.
Chart courtesy of StockCharts.com
This made the company the first marijuana-centered stock to join a major U.S.-based exchange.
The market loved the move, and Cronos jumped double-digits in the immediate aftermath of the announcement.
Other companies followed suit, trying to ape CRON stock’s success by announcing their own designs on the Nasdaq, but the distinction of being the first marijuana company on the exchange helped propel Cronos stock’s success.
I was not particularly swayed by the move at first, however, because I did not believe that it was enough to sustain long-term gains. Other marijuana companies will inevitably join the Nasdaq and therefore strip CRON stock of its special position.
But I did begin to sing the company’s praises when it made a deal with MedMen Enterprises, an American company that is one of the largest suppliers of marijuana to several states where weed is legal.
The move showed foresight and a pivot toward American markets, which will be huge in the near future, especially considering the void that will be left following the end of the Canadian marijuana legalization hype.
While the Nasdaq move was savvy, if shallow, the MedMen deal was far more substantial and made me believe that CRON stock could be a valuable long-term investment.
My final conclusion is that Cronos Group stock is going to have to take this bump due to its rapid growth from the Nasdaq listing. The share price shot up too high and too fast for what the market was willing to bear, and we’re seeing the consequences of that now.
Having said that, factors like the pivot toward the U.S. market with the MedMen deal (the deal is Canada-focused but Cronos has said that it is looking to do more business in the U.S.) have put Cronos stock on much stronger footing. Therefore, I believe that the stock price will bounce back from this correction in time.
My opinion: wait for the stock to hit a bottom before jumping back in. I believe that gains will follow the company into the summer as Canadian marijuana legalization approaches, but, for now, it’s best to wait out the drop and let the correction take its course.