Can Green Thumb Industries Inc overcome the economic shock of Covid-19?
The economic shock waves caused by Covid-19 have plunged the economy into turmoil. Some stocks are better able to absorb this kind of uncertainty than others – but could Green Thumb Industries Inc. (CNSX: GTII) to be one of them?
To understand why different actions react to chaos in different ways, it’s helpful to look at their strengths…
In bull markets, investors tend to look to more speculative growth stocks in order to get the best returns. But these stocks can collapse at the onset of a crisis.
In contrast, high-quality stocks are often overlooked in bull markets. But it is often the latter that are best able to maintain momentum and recover fastest from periods of volatility.
Shares in Green Thumb Industries Inc. are currently trading at 24.5 but a question on the minds of many investors is how the price will react to the uncertainty of Covid-19.
The answer is that there are positive signs. Green Thumb Industries Inc. appears to be performing well against some important financial and technical metrics and has at least some exposure to of them Influencing factors of return on investment: high quality and strong momentum.
So why are these two factors important and where do the clues lie?
When it comes to stock analysis, the quality of the company tends to show itself in high profitability and strong leading margins. These types of businesses are stable, growing, and often have accelerating sales and profits. They also have solid and improving financial histories, with no obvious signs of accounting risk or bankruptcy.
One of Green Thumb Industries Inc’s quality indicators is its 5-year return on capital employed, which is 116.7%. Long-term double-digit ROCEs can be a hallmark of companies with the power to grow very profitably.
Positive dynamic trends are evident in stock prices and earnings growth. You can find the clues in stocks that are trading near their 52-week highs and outperforming the market. They will often exceed broker estimates and get forecast updates and recommendation changes.
There are signs of that at Green Thumb Industries Inc, where the stock price has returned 90.1% relative to the market over the past 12 months. Market volatility and economic uncertainty can significantly dampen momentum, but previously strong stocks can quickly rally when confidence returns.
In summary, a combination of high quality and momentum can be a clue in finding stocks that can deliver strong investment returns over many years.
In good times, these stocks can become expensive to buy. But in volatile markets, there may be chances to buy them at cheaper prices.
What does this mean for potential investors?
Finding good quality stocks with strong momentum behind them is a strategy used by some of the world’s most successful investors. But beware: these factors do not guarantee future returns and we have identified some areas of concern with Green Thumb Industries Inc which you can read about here.
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