Please ensure Javascript is enabled for purposes of website accessibility

Is Curaleaf Stock a Buy?

By David Jagielski - Feb 24, 2021 at 9:41AM

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 cannabis producer has been one of the hottest buys in the industry over the past year.

By 2025, the cannabis industry in the U.S. could be worth more than $41 billion. That's more than three times the size it was in 2019 ($13.2 billion). The fast-growing space is a great place to invest if you are looking for growth opportunities.

One standout in the sector is Curaleaf Holdings (CURLF 0.74%). With incredible sales growth and operations in nearly two dozen states across the U.S., this company hasn't been shy about expanding. But is now a good time to invest in Curaleaf, or has the stock's rapid ascent over the past year made it too expensive? Let's take a closer look at its numbers and whether it is worth investing in today.

Cannabis greenhouse.

Image source: Getty Images.

Acquisitions are fueling the company's growth

What attracts many investors to Curaleaf is the company's aggressive approach to growing its brand. This month, the cannabis producer announced the opening of its 100th dispensary, located in Jacksonville, Fla. Curaleaf is among the top multistate operators in the country and a great investment if you're bullish on more states legalizing recreational marijuana.

A year ago, the company completed the acquisition of Cura Partners. At that point, it was only operating in 14 states and had just 53 dispensaries. It closed on another big acquisition in July 2020, bringing Grassroots into the fold, which brought its total number of states to the current 23.

All that wheeling and dealing has helped the company significantly grow its top line. When Curaleaf reported its third-quarter results on Nov. 17, its sales of $182.4 million for the period ending Sept. 30 were up 195% year over year. On a pro forma basis, including the revenue of Grassroots for the full quarter, that number would have been $215.3 million, or 18% higher.

Acquisitions are key to the company's growth, especially since it's not possible to move pot across state lines as long as marijuana remains illegal in the U.S. under federal law. Although Curaleaf's cash balance of $84.6 million as of the end of Q3 isn't going to be enough to make any big buys, its strong share price could help fund more acquisitions in the future. In the past year, shares of Curaleaf are up 180%, dwarfing the Horizons Marijuana Life Sciences ETF and its 61% returns during that time.

But is there more growth possible from here?

How Curaleaf's valuation compares to its peers

Because many cannabis companies are not profitable, the price-to-sales (P/S) ratio is key to comparing them. Curaleaf is profitable at an adjusted EBITDA level, but the company is still in the red in terms of its net income. Here's how Curaleaf stacks up against rivals Trulieve CannabisAcreage Holdings, and Planet 13 when comparing their forward P/S multiples:

CURLF PS Ratio (Forward) Chart

CURLF PS Ratio (Forward) data by YCharts

Curaleaf is the most expensive of the stocks on this list. Investors may be turned off at the prospect of investing in the company for that reason. The pot stock is also trading near its 52-week high for the year. But the problem with sales-based valuations, not least those that look a year in advance, is that many things can change.

As more states legalize marijuana, or if the federal government moves the substance out of its Schedule 1 drug classification, the growth prospects for the industry can change in a hurry. As a result, pot stocks can be a bit of a moving target because their multiples can change quickly, especially if there is a big acquisition.

Should you invest in Curaleaf?

Curaleaf is one of the top cannabis companies in the industry. It offers investors a great way to tap into the industry's potential growth opportunities. In the company's most recent quarter, sales nearly tripled from the prior-year period. As the industry continues to expand and Curaleaf moves into more states, it wouldn't be unrealistic to see the company continue growing at those kinds of rates.

New York, one of the biggest potential markets, is looking at legalizing recreational pot. That's just one place where Curaleaf could generate more growth in the near future. New Jersey is another, with Governor Phil Murphy signing three bills on Monday that will officially legalize pot in that state. Recreational pot sales in the Garden State could begin later this year. But only 15 states have legalized marijuana for recreational use so far, meaning there are still many more opportunities out there. That's one reason P/S and other multiples aren't always helpful in evaluating a fast-growing stock like Curaleaf.

As an industry leader, Curaleaf may be your best bet in the marijuana space right now. You can be sure that as new markets open up, the cannabis producer will be aggressive in pursuing them. Although it has already generated some great returns for investors in the past year, there's little reason to doubt that the stock can go even higher. If you are bullish on the marijuana industry in the U.S., this is a stock you will want to have in your portfolio.

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

Curaleaf Holdings, Inc. Stock Quote
Curaleaf Holdings, Inc.
CURLF
$6.12 (0.74%) $0.04
Horizons Marijuana Life Sciences Index ETF Stock Quote
Horizons Marijuana Life Sciences Index ETF
HMLSF
$3.19 (1.91%) $0.06
Planet 13 Holdings Inc. Stock Quote
Planet 13 Holdings Inc.
PLNH.F
$1.46 (-1.35%) $0.02
Acreage Holdings, Inc. Stock Quote
Acreage Holdings, Inc.
ACRGF
Trulieve Cannabis Stock Quote
Trulieve Cannabis
TCNNF
$14.12 (-1.99%) $0.29

*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
322%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/26/2022.

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.