Is Cronos Group (CRON) Stock a Strong Buy?

Shares of Canadian pot grower and distributor Cronos Group (NASDAQ:CRON) have been on fire this week, thanks to Altria‘s (NYSE:MO) reported interest in either buying the company outright or perhaps striking a partnership agreement that could include a sizable equity investment. Altria is the largest American tobacco company in terms of annual sales and the maker of iconic cigarette brands like Marlboro.

While a partnership with tobacco giant Altria would almost certainly alter Cronos’ near- and long-term outlook in a fundamental way, there’s also some very good reasons to remain cautious with this mid-cap pot stock…

First of all, Altria is rumored to have also touched base with other cannabis companies such as Aphria (TSX:APHA) and Tilray (NASDAQ:TLRY) about an equity investment or a possible takeover. Aphria no longer appears to be in the running for a variety of reasons. But Tilray’s top-notch production facilities and expanding global footprint could make it a more attractive partner than Cronos at the end of the day.

Cronos’ sky-high valuation is another key concern. After this latest rally, the pot producer’s shares are now trading at over 17 times its 2019 projected sales. That valuation may pale in comparison to the likes of pot titan Tilray, but it’s still nowhere near cheap.

The main point is that investors should definitely chew over Cronos’ core value proposition before buying shares at these elevated levels — and not simply speculate on a deal that may never materialize. With this idea in mind, let’s tease apart Cronos’ underlying business to consider if this high-flying pot stock is truly worthy of our hard-earned capital…

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