Investors can closely monitor the cannabis stock market based on two criteria
If you are looking to gain a better understanding of how to evaluate company plans and future stock performance, there are two trends that can be of great help. It’s no secret to anyone that appreciating industry trends and acting accordingly is necessary if you’re really looking to make money investing in marijuana businesses.
For starters, you need to appreciate falling valuations. While it is a trend that is not as discussed in cannabis stocks today, its importance should be greater if you really want to know how the industry will react in the future.
Looking closely, you can see that such major stocks as Tilray Brands, Cresco Labs, Trulieve Cannabis, and others have experienced sharp declines in their price-to-sales (P/S) ratios over the past two years. During that same period, the trailing 12-month revenues of each of these companies have posted moderate to extremely rapid growth.
Since revenues are not experiencing a decline, falling stock prices are the real cause of valuation deflation. This being the case, investors have the ability to buy premium cannabis cultivars at fairly affordable prices. The best thing about this is that there is a low probability that valuations will return to their previous levels in the short term.
On the other hand, consumer demand is expected to increase. While the last few years have proven to be quite fruitful for cannabis companies in terms of revenue and market growth, there is a tendency for consumer demand to continue to improve through 2025.
If one were to analyze the projections, one could see how year on year demand has been increasing. That means that well-functioning companies like Trulieve have a high probability of continuing to expand their sales at an accelerated rate. None of this means that earnings growth has to be compromised, especially if acquisitions remain part of the game.