Shares of Cronos Group (NASDAQ:CRON) tumbled throughout most of last week, in line with volatility in the sector. Given its rapid ascent and the disheartening fall, CRON stock is a great example of why we should invest without bias or emotion.
When it comes to allocating our hard-earned dollars though, it’s hard to do it without bias or emotion. At times, that’s where technical analysis blends really well with the fundamentals.
It can help investors take out some of the guesswork and improve their timing. In the case of CRON stock, there was certainly a time to be long. After all, the stock went from sub-$10 to $25 at the start of 2019. However, technical analysis could have prevented investors from getting hurt in the ensuing decline.
Trading CRON Stock
CRON stock has been in a world of pain, highlighted by the its 41% decline over the last 90 days. From its highs, Cronos Group stock is down even more, falling more than 60% from the February highs.
After Cronos Group stock broke below $14, we flagged the setup as bearish. Little did we realize the stock would be sub-$10 just a few months later.
I’m sorry to say, bulls, but this chart is far from pretty. Unless Cronos Group stock is able to reverse higher, reclaim a few notable levels and crack its various downtrends, it’s hard to get too excited.
When a stock is trending lower like this, it does either one of two things: it finds robust strength to the upside, or it continues to print lower prices.
Buyers really stepped up in the fourth quarter of 2018, when CRON stock was trading near $7.50. Down near this level again and I think Cronos will be washed out enough to consider buying again.
Should we see strength to the upside, we first need to see Cronos Group stock above $10 again. Reclaiming the 23.6% retracement is another step we’d like to see. But we really need to see the bearish trend end. What I mean by that is, CRON stock must go from making lower lows to making higher lows.
Once that happens, shares can reclaim the 20-day and 50-day moving averages, and eventually break over downtrend resistance (blue line). So, unless you’re a dollar-cost averaging, long-term investor, CRON stock still needs more time on the technical side before becoming a buy.
Valuing Cronos Group Stock
The hard part with Cronos Group stock? Valuation.
That goes for the entire cannabis space in general. Aurora Cannabis (NYSE:ACB), Canopy Growth (NYSE:CGC), Aphria (NYSE:APHA), New Ages Beverages (NASDAQ:NBEV), you name it. This group is expensive, because they do not have the sales, profit or cash flow to justify their market capitalizations by way of traditional valuation metrics.
When the valuations don’t justify the stock price, investors need to lean on the technicals to help them out. That’s why blending (or at least considering) fundamental and technical analysis can be so beneficial. We see all the time a company with solid fundamentals whose shares get trashed in the markets. Often in these cases, the technicals suggested caution.
In the case of CRON stock, we have a company that’s overvalued and its technicals are a mess. That’s a no touch for me, even though it has impressive growth.
In fiscal 2018, Cronos Group had $11.5 million in sales. Analysts expect about that much in revenue this quarter. So, to say growth is robust would be an understatement. However, does that justify a $3.2 billion market cap? That’s what’s causing a headache for so many investors.
On the flip side, CRON has CAD$2.3 billion in cash and short-term securities. That’s an impressive sum and attractive for obvious reasons. But with current assets of CAD$2.4 billion and current liabilities of CAD$1.4 billion, Cronos Group does not have the same balance sheet flexibility as some of its peers.
Further, total assets of CAD$2.66 billion versus total liabilities of CAD$1.4 billion is not as strong as other plays in the cannabis field. If I’m betting on cannabis, I’m going with a strong balance sheet in this environment, at least until the technicals improve.