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Do Cannabis Stocks Look Cheap at These Valuations?

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Anemic movement

Lately, cannabis stocks have exhibited anemic movement despite the fact that sector constituents such as Canopy Growth (WEED)(CGC), Aurora Cannabis (ACB), Aphria (APHA), HEXO (HEXO), and others continue to expand their operations.

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Performance so far

The above chart shows the monthly returns for the cannabis sector ETFs. The biggest gains for the sector came in January and February, after which the sector has pretty much been flat. In the current month, the Horizons Marijuana Life Sciences ETF (HMMJ) has a negative return of about 3%, and the ETFMG Alternative Harvest ETF (MJ) has a negative return of 3% as well. On the other hand, the Horizons Marijuana Emerging Market Growers Index ETF (HMJR) has maintained positive returns in each month and has returned about 1% this month. Some of the stocks that have performed poorly include Tilray (TLRY), which has lost almost 14% so far this month as of April 9 closing.

Valuations

As these stocks decline, it is not enough to just look at a drop in a stock’s price to determine whether it is a good buy or not. Valuation multiples provide a better measure to help us make that determination. Thus, investors should regularly check valuation multiples as opposed to stock price drops alone to make entry or exit decisions.

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