Please ensure Javascript is enabled for purposes of website accessibility

Why Charlotte's Web Holdings Stock Just Dropped

By Rich Smith - Feb 23, 2021 at 12:44PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The CBD seller's stock seems to be tangled up with the tech sell-off.

What happened

Has the market correction finally arrived? It sure feels like it today, with the Nasdaq first falling nearly 4%, then rebounding, but now falling again, and currently off about 2.4% as of 12:15 p.m. EST. Tech stocks seem to be taking the biggest hit, but marijuana shares, and marijuana-adjacent stocks like CBD seller Charlotte's Web Holdings (CWBHF 0.92%), are getting tangled up in the selling. As of 12:15 p.m. EST, Charlotte's Web was down 6.8%.

So what

Analysts are uncertain what's causing the sell-off, citing everything from a recent rise in government bond rates to a "risk cluster" surrounding investors who've sunk their money into high-flying tech stocks.    

What does any of that have to do with Charlotte's Web Holdings, you ask? I'm honestly not sure -- but neither am I optimistic.

It's not as if investors have a lot of gains in Charlotte's Web stock that they could be concerned about losing in the middle of a tech sell-off. Charlotte's Web shares are only up about 6% over the past year. But on the other hand, the stock's really not heading into this sell-off in any kind of position of strength. Sales were anemic last quarter, growing only a fraction of 1%, and the company hasn't reported positive earnings since mid-2019, back even before the recession began.

White arrow declining sharply atop a stock tickertape display bathed in red

Image source: Getty Images.

Now what

With a negative P/E ratio, negative free cash flow, and a fair slug of debt on its books, Charlotte's Web doesn't look to me like any kind of a bargain -- a safe port in a sell-off storm that investors might flock to as the rest of the market tanks. Meanwhile, prospects for marijuana legalization in the new year aren't likely to benefit Charlotte's Web much, either, because the easier it gets to buy "real" marijuana, the less interested I'd expect consumers to be in buying "marijuana-lite" products like CBD.

I may not be able to explain why investors are abandoning Charlotte's Web stock today in particular, but I'm pretty sure they're right to be skeptical of the stock's potential in general.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Charlotte's Web Holdings, Inc. Stock Quote
Charlotte's Web Holdings, Inc.
$0.50 (0.92%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.