Shares of Cronos Group (NASDAQ:CRON) have been on fire lately, more than doubling in less than six weeks. What’s up with CRON stock and can it advance further?
Cannabis stocks are very fascinating to watch. While the group certainly has long-term potential as the U.S. and the world continue to go through the legalization process, the group’s stocks have become a trader’s paradise.
The stocks’ moves are extreme, in both directions, and they’re being fed purely by sentiment. These swings can be difficult for investors emotionally, as they suffer paper losses and enjoy enormous gains, but that’s exactly what traders like to see.
So what’s been happening to CRON stock? Cronos Group stock went from about $10 to about $13 after it was announced that Altria (NYSE:MO) would take a $1.8 billion stake in CRON. That news came on Dec. 7, but by Christmas, CRON stock was back down to $10.
Once the market started to rebound from its Christmas Eve lows, Cronos Group stock really flew. Now, with Cronos Group stock over $21 per share, some are wondering if it’s too late to buy the shares.
Evaluating CRON
Cronos Group has been in focus lately because of a few of its positive catalysts. First, cannabis stocks have regained momentum recently, with names like Aurora Cannabis (NYSE:ACB), Canopy Growth (NYSE:CGC), New Ages Beverages (NASDAQ:NBEV) and others shifting into “rally mode.”
Second, after a large, well-known firm takes a multi-billion stake in a company, the company’s stock price usually rises. That’s been the case with CRON stock. Altria is buying $1.8 billion of Cronos Group stock in exchange for 40% of its equity. It has a warrant to buy another 10% stake at a premium of about 17% to its initial purchase price.
The strategic-equity investment leaves investors in a conundrum: Cannabis stocks, generally speaking, are overvalued when viewed in the context of the next 12 to 24 months. Beyond that point, though, many may feel they are undervalued compared to their potential over the next three to five years.
With Altria investing $1.8 billion in the space, Constellation Brands (NYSE:STZ) spending $4 billion on its own cannabis investment, Coca-Cola (NYSE:KO) in talks with Aurora Cannabis and Tilray developing products with Anheuser-Busch (NYSE:BUD) and Sandoz, a unit of Novartis (NYSE:NVS), it’s logical for investors to feel optimistic about the sector’s future.
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With all that said, it’s no wonder CRON has been shooting higher. When big-name international companies are taking big stakes in a stock, demand for the shares obviously rises. When demand goes up, so does the share price.
After almost hitting $22 on Friday and grazing $25 on Monday, CRON stock is clearly in demand, even though it’s down around 4.5% in early-afternoon trading today. However, Cronos Group stock does look a bit toppy over $20.
If investors went long CRON stock near $10, they’ve more than doubled their money. Taking profits is hard to do if investors think the stock could rise further. To make it easier, investors can consider using a trailing stop-loss, thereby ensuring that they will keep the bulk of their gains but giving them the opportunity to ride the stock higher.
Those who aren’t long CRON yet should wait. With an RSI reading of about 89, it’s clear that Cronos Group stock is overbought in the short-term.
That doesn’t make Cronos an outright sell or a short, but investors should keep in mind that the rally is a little long in the tooth. On a pullback of CRON stock, look to see if its short-term uptrend support, depicted by the blue line on the chart, holds. If not, l am curious to see if the support level around $18, which was previously a consolidation zone, holds up.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
