Posted in CBD Stocks

Why Charlotte’s Web Holdings Stock Just Dropped

 Posted by  Posted on February 23, 2021

diagram: Why Charlotte's Web Holdings Stock Just Dropped © Provided by The Motley Fool Why Charlotte’s Web Holdings Stock Just Dropped

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 (OTC: CWBHF), 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 © Getty Images White arrow declining sharply atop a stock tickertape display bathed in red

Gallery: 13 Best Growth ETFs for a Rip-Roaring 2021 (Kiplinger)

a close up of a blackboard: 2021 has been hailed by many as the year value finally makes its comeback. But investors should ignore growth stocks and growth exchange-traded funds (ETFs) at their own peril. In the near term, the end of COVID-19 – an important driver for value – doesn't appear quite so close as most experts thought it would be. "Already, due to near-term disappointments in the global vaccination campaign and the evidence of potentially dangerous virus mutations around the world ... value stocks have again underperformed growth stocks," write BCA Research strategists. If you can look beyond the admittedly uncertain near-term outlook, things still seem to be shaping up well for growth. The Biden administration will take over big aims to invest in clean energy and education investments. A likely divided Congress will keep Democrats from passing any sweeping private-sector overhauls, including in the technology sector. And the stock market is roaring to new all-time highs in anticipation of strong growth once we move past the pandemic. High-growth stocks can cut both ways, of course, especially if a rotation into value takes the wind out of growth's sails, even temporarily. But you can protect yourself against sharp drops in any individual stock by spreading your risk across dozens or even hundreds of growth stocks, which you can do via growth ETFs. Here are 13 of the best growth ETFs if you're looking for simple but diversified one-stop investments to capitalize on any number of growth trends in the stock market. SEE MORE The 21 Best ETFs to Buy for a Prosperous 2021 Data is as of Feb. 7.

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.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Charlotte’s Web. The Motley Fool has a disclosure policy.

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Author: CSN