| | | | | | | | May's Marijuana Massacre: Buying Opportunities Amid the Rubble | | Matthew Carr | Chief Trends Strategist | The Oxford Club | | | | | | | Editor's Note: Up to $2,540 every seven days on average... That's how much one elite group of readers within The Oxford Club has had the opportunity to collect.
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"Buy when there's blood in the streets."
For almost two centuries, investors have parroted the wisdom of Nathan Rothschild.
It's served as a reminder that the sun will shine again after sell-offs.
So while the broader markets bled red in May... marijuana stocks were massacred.
As a whole, they fell twice as hard as the Dow Jones Industrial Average and S&P 500. Some pot stocks were truly gutted, losing half of their value or more.
But as always, we're on the hunt for more opportunities.
We're digging through the rubble to find the true gems - ones we can pick up at a tremendous discount.
And we want to avoid those companies that, even after May's sell-off, still might have further to fall.
So, in this week's Making the Grade, my team and I looked at the price-to-sales (P/S) ratio of cannabis stocks to determine which companies are overvalued and which are on sale.
10 Most Expensive
Our standard philosophy applies: We want to look at how the P/S ratios of these pot stocks relate to those of their peers - not some arbitrary, "ideal" number.
For the marijuana industry, the median P/S ratio is 20.68.
And that's after removing the highest and lowest outliers.
For comparison, that's more than twice the 8.33 P/S ratio of the S&P's most expensive sector, real estate.
But these are largely small cap growth companies. We expect them to have ratios on the higher side.
Of course, there are some pot stocks that have extraordinarily high P/S ratios at the moment.
Here are the 10 most expensive cannabis companies ranked by P/S ratio. And the cheapest of these is more than 6.5 times the industry median... Zynerba Pharmaceuticals (Nasdaq: ZYNE) has an extremely high P/S ratio of more than 2,000. That's almost 100 times the industry median.
Personalized wellness and nutritional site Frelii (OTC: FRLI) is a distant second. But it's still more than 40 times the median.
Then, in the No. 3 spot, we have Epidiolex maker, GW Pharmaceuticals (Nasdaq: GWPH).
Now, I'm not too surprised that GW Pharma and Zynerba are on the list.
Zynerba shares are up nearly 300% in 2019, and GW's are up more than 75%. That's even after the pullbacks in May.
But Emerald Health Therapeutics (OTC: EMHTF) and Lexaria Bioscience Corp. (OTC: LXRP) are especially noteworthy.
That's because they aren't highfliers. They're not in a situation where the share price maybe got ahead of sales.
Emerald Health shares are up roughly 17% year to date, while Lexaria's have lost 10%.
These trail the industry gains this year by a significant margin.
And yet, compared with the industry's median P/S ratio, they're seen as overvalued.
Now, I want to make an important reminder: These 10 companies are the ones investors should be wary of.
Using the P/S metric, they're considered more expensive.
So if they're on your buy or watch list, take heed.
I mention this because, in May, we looked at the most overbought companies based on relative strength index (RSI).
At the time, Frelii and Zynerba were two of our top three to be concerned about.
Apparently, some investors got confused.
For Zynerba, no big shocker: Shares were up more than 420% year to date! Shares of Zynerba slid 21%, and our No. 1 most overbought pot stock based on RSI in May fell 45.7%.
And, unfortunately, I received angry emails from those who purchased Frelii - despite my warning - when shares dropped 73.5% over the following two weeks!
These were companies that looked "overbought," so we warned investors to practice caution.
The same holds true for the 10 stocks above... We see these as the most expensive based on P/S ratio. | | | 10 Least Expensive
With that out of the way, let's crack the seal on the good news.
Where are the potential opportunities in cannabis after May's massacre?
Here are the 10 cheapest pot stocks based on P/S ratio... At the top of the list is Isodiol International (OTC: ISOLF) with a P/S ratio of a mere 0.35.
That's not only cheap by industry standards. That's cheap by traditional standards.
Zenabis Global (OTC: ZBISF) is No. 2 with a 1.6 P/S ratio, followed by cannabis security company 3 Sixty Risk Solutions (OTC: SAYFF).
Packaging company KushCo Holdings (OTC: KSHB) and surging CBD maker cbdMD (NYSE: YCBD) also made the list.
Not to mention, U.S. multistate operator Curaleaf Holdings (OTC: CURLF) and cannabis-infused strip manufacturer Lifestyle Delivery Systems (OTC: LDSYF) are on there as well.
But since we're looking at a single metric, we have to be mindful of the bigger picture.
For example, 3 Sixty Risk Solutions, Isodiol, KushCo, Medical Marijuana Inc. (OTC: MJNA), Sunniva (CSE: SNN) and Zenabis Global have struggled in 2019.
At the same time, 1933 Industries (OTC: TGIFF), cbdMD, Curaleaf and Lifestyle Delivery have been solid performers year to date.
CbdMD leads the pack, up more than 85%. Meanwhile, Curaleaf has posted a nice 73% gain.
That means we're seeing value in laggards, as well as those that have had strong price momentum this year.
Sort Through the Rubble
I'm a believer in "buying when there's blood in the streets." But at the same time, investors don't want to try to catch a falling knife and risk adding their own blood to the mix.
That's why metrics like the P/S ratio can be lifesaving.
They provide us with a barometer of a company's value compared with those of its peers. And we can quickly see if we're paying too much or if we have stumbled across a deep discount.
Here's to high returns,
Matthew | | | | |  | | | | | | | |  | | | | Matthew Carr | June 10, 2019 Americans are buying pre-rolls as much as they're buying Quesaritos and Beefy Fritos Burritos. Read More | | | | |  | | | | Anthony Summers | June 8, 2019 Beating the market is not easy... but it is possible. It's a matter of sticking to what works and having discipline during difficult times. Read More | | | | |  | | | | Matthew Carr | June 6, 2019 Last month ended with some of the cannabis industry's most newsworthy days in a while. Read More | | | | | | | | | | | | | | | |
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The Oxford Club is a financial publisher that does not offer any personal financial advice or advocate the purchase or sale of any security or investment for any specific individual. Members should be aware that although our track record is highly rated by an independent analysis and has been legally reviewed, investment markets have inherent risks and there can be no guarantee of future profits. The stated returns may also include option trades. 
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