Cannabis stocks have taken Wall Street by storm this year as companies like Tilray and Canopy Growth have been among the most sought-after stocks on the market. That upper echelon of Wall Street cannabis stocks is about to add another name for investors to chase: Aurora Cannabis.
If you trade Canadian stocks, you already have access to Aurora Cannabis (TSE: ACB). This week, however, the company announced that it has been approved for trading on the New York Stock Exchange.
Aurora will trade under the ticker ACB starting October 23.
The announcement arrived the same week that pot was legalized in Canada for both medicinal and recreational use — which has only served to fuel speculation on the sector.
ACB stock has surged more than 44 percent since hitting near-term low back in August. Furthermore, the NYSE listing news prompted a 15 percent spike in ACB stock.
As you can see from the chart, ACB stock has formed a strong short-term uptrend. What’s more, the stock’s 50-day and 200-day simple moving averages have formed a bullish cross — one known to technical traders as a “golden cross.” This formation is a momentum indicator, and often signals additional upside.
The problem is that the hype surrounding Aurora, and pot stocks in general, is getting a bit out of hand. For one, ACB’s 14-day relative strength index continues to hover near overbought levels. In short, buying support for the stock is near exhausted.
The question for investors chasing opportunities in the cannabis sector is: Should you buy ACB the day it lists on the NYSE?
Unless you have extra cash you can risk for speculation, the answer is no.
ACB stock is sure to surge once the shares start trading on Wall Street, but that hype could evaporate quickly. Part of the reason is that the shares already sport a P/E ratio of 90.05, according to Morningstar. The industry average rests at about 15, meaning ACB is already highly overvalued even before listing on the NYSE.
With the market experiencing considerable volatility right now, there is no doubt that ACB stock will come back down to earth following its initial NYSE trading day. If you’re interested in adding ACB to your portfolio, this post-hype pullback will be your best options to take advantage of any continued rally from the shares.