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Why Charlotte's Web Stock Is Sinking Today

Keith Speights, The Motley Fool

What happened

Shares of Charlotte's Web Holdings (OTC: CWBHF) had sunk 7.7% lower as of 11:14 a.m. EDT on Wednesday after dropping as much as 15.4% earlier in the day. The cannabidiol (CBD) products maker reported second-quarter results before the market opened.

Charlotte's Web's revenue jumped 45% year over year and 15% quarter over quarter to $25 million. However, this fell short of the consensus analysts' revenue estimate of $26.3 million. The company also posted earnings per share (EPS) of $0.02, well below the average analysts' EPS estimate of $0.04.

Cannabis leaf, CBD oils in bottles, and a small drawing of CBD chemical structure

Image source: Getty Images.

So what

Some view Charlotte's Web's Q2 results as a scenario wherein the company failed to meet Wall Street analysts' estimates. But another perspective is that it's the analysts who failed by not accurately projecting how the second quarter would pan out.

Even though Charlotte's Web didn't hit analysts' revenue estimate, the company delivered pretty impressive sales growth in the second quarter. All of its product categories enjoyed higher demand, with sales for CBD topical products skyrocketing 493% year over year.

Sure, the company's bottom-line performance didn't meet analysts' expectations and deteriorated from the prior-year period. However, Charlotte's Web is investing now in hiring more staff with the goal of reaping the rewards in the future. One quarterly report doesn't tell the full story.

Will Charlotte's Web's sales momentum continue? Absolutely. Remember that the company's Q2 results don't include any impact of its recent deal with Kroger. The big grocery chain plans to carry Charlotte's Web topical CBD products in 1,350 stores across 22 states. Charlotte's Web's profits will also likely increase significantly as its revenue grows.

Now what

Charlotte's Web has more than doubled the number of retail locations carrying its products since the beginning of 2019. The company has nearly tripled its planted hemp acreage. It only makes sense that the company would boost spending in anticipation of tremendous growth.

The company projects that its revenue will increase at a faster rate than its operating expenses in the second half of 2019. That should translate to better profits than Charlotte's Web has delivered so far this year. With brighter days ahead, today's sell-off appears to be a great buying opportunity for this CBD stock.


Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Charlotte's Web. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com