Charlotte’s Web Holdings Inc (TSX: CWEB) is a Canada-based company engaged in producing and distributing hemp-based cannabidiol (CBD) wellness products. Its product categories include ingestible products (tinctures, capsules, and gummies), topicals, and pet products.

Why should Investors make an EXIT?

• Lower margin profile v/s Industry: The company is continuously failing on maintaining its pace and is witnessing lower performance under operating margin matrix, comprising of a gross margin, EBITDA margin, operating margin and net margin. Even in Q3 2021, it recorded lower margins, which exhibits the extreme pressure on the company.

Source: REFINITIV, Analysis by Kalkine Group

• Long Cash Cycle days: The company is holding higher Cash Cycle (Days) compared to the industry, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is at 647.4 days compared to an industry median of 122.9 days.

• Trading above the upper band of the Bollinger Bands: Recently, the stock witnessed a healthy rally on the daily price chart and has moved above the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation. Furthermore, the momentum oscillator RSI (14-Period) is trading at ~75.15 levels, which also indicates that the stock is in overbought zone and there is a deep possibility of price consolidation or correction.

One-Year Technical Price Chart (as on February 11, 2022). Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to Sales

*1USD=1.28CAD

Analysis by Kalkine Group 

Stock recommendation 

The stock earned a spectacular 52.30 percent return in the last one week alone. Many risks, such as supply chain disruptions, failure to sustain pricing, and so on, are inherent in the structure of the business and the industry to which the stock belongs. Furthermore, the stock's margins are lower than the industry average, implying that the company is under severe pressure. Moreover, it also has a prolonged Cash Cycle (Days), which may create a difficulty for the company to have enough cash on hand to meet their financial obligations. Even the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 1.98 on February 11, 2022. 

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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