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On today’s TSX Breakouts report, there are 46 stocks on the positive breakouts list (stocks with positive price momentum), and 58 stocks are on the negative breakouts list (stocks with negative price momentum).

The security highlighted today is a growth stock that appeared on the positive breakouts list earlier in this month. Year-to-date, the share price is up 78 per cent. There are six analysts that actively cover this company and all have “buy” recommendations. On Wednesday, the company will be reporting its second-quarter earnings results.

Discussed below is Charlotte’s Web Holdings Inc. (CWEB-T). The share price can be quite volatile and should be considered by investors with a high risk tolerance.

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A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

This Canadian company has its head office in Boulder, Col.

Charlotte’s Web is a vertically integrated operator meaning it produces, manufactures and markets hemp-based CBD (cannabidiol) products including CBD liquid products, capsules, topicals and products for pets. Hemp extracts have less than 0.3 per cent THC and consequently do not have psychoactive “high” effects. The company does not produce or sell marijuana. In late 2018, hemp was removed from the Controlled Substances Act with the passing of the 2018 Farm Bill and is now considered an agricultural product. Its wellness products have brand recognition by consumers and are marketed for the treatment of reducing stress, regulating sleep, and alleviating pain from inflammation caused by physical activity. The company argues that its products improves one’s health by stimulating receptors in an individual’s nervous system and immune system.

The bulk of the company’s sales occur through its website. In 2018, 55 per cent of the company’s revenue stemmed from online, direct to consumer sales. The balance, 45 per cent of total sales, were generated through sales in retail stores, such as grocery stores, drug stores, pet stores and natural health retailers. Its products are sold to five major retailers such as Safeway and most recently Kroger was added to this list. On July 29, the company announced that its products will be sold in U.S. grocery retailer Kroger stores, 1,350 stores across 22 U.S. states. The company’s products are sold in over 8,000 retail locations across the U.S. Furthermore, on the first-quarter earnings call, the chief executive officer Deanie Elsner announced that the company is in the pilot phase in its agreements with Amazon and Google.

During the first half of the year, the company has experienced key management changes and additions.

In May, Ms. Deanie Elsner became the company’s new chief executive officer. Previously, she was the president of Kellogg’s U.S. snacks division. In January, former Coca-Cola senior management executive Eugenio Mendez joined Charlotte’s Web as the chief growth officer. Mr. Mendez was the former vice-president of global marketing of water, enhanced water and sports drinks at Coca-Cola. Mr. Mendez will help facility the company’s global expansion strategy. Also in January, Stephen Lermer joined the company as the chief operating officer. He previously held management positions at leading pharmaceutical companies including Johnson & Johnson and DuPont.

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On May 31, the stock graduated to the Toronto Stock Exchange from the Canadian Securities Exchange, improving the company’s visibility.

On May 28, the company reported its first-quarter financial results that fell short of expectations and sent the share price declining 5 per cent the following trading day.

Revenue was US$21.7-million, up 66 per cent year-over-year but below the Street’s expectations of US$22.7-million. Adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] was US$4.5-million, relatively unchanged from the US$4.6-million reported during the same period last year and below the US$5.6-million expected by the Street. Earnings per share came in at 2 US cents per share, down from 4 US cents per share reported last year.

On the earnings call, the CEO remarked on the higher expenses, “Sales and marketing activities as a percentage of revenue remained flat [in] Q4 [fourth-quarter] and G&A [general and administrative expenses] as a percentage of revenue came in at 39 per cent versus 38 per cent [in] Q4. The company continues to invest in required infrastructure in advance of future growth expectations, including investment in key personnel, IT [technology], product fulfillment capabilities and quality control. This investment is showing up in our operating expense numbers today, but will benefit tomorrow.”

Management reiterated their 2019 revenue guidance of between US$120-million and US$170-million, a wide range, and expects adjusted EBITDA margin to be between 30 per cent and 35 per cent in 2019.

On May 24, the company completed a secondary offering, raising US$161-million through the issuance of common shares at a price per share of US$20.

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The company will be releasing its second-quarter financial results before the market opens on Wed. Aug. 14. The Street is expecting the company to report revenue of US$26-million, EBITDA of US$7.3-million and earnings per share of 4.5 US cents.

That day, the company will be hosting a conference call at 10 a.m. ET.

Dividend policy

Management is committed to growing the business and as a result currently does not pay its shareholders a dividend.

Financial forecasts

Strong growth is anticipated for this company.

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The Street is forecasting revenue of US$137-million in 2019, up from US$69.5-million reported in 2018, jumping to US$312-million in 2020. The consensus EBITDA estimates are US$42-million in 2019, up from US$21-million reported in 2018, and expected to climb to US$104-million in 2020. Earnings per share is anticipated to come in at 27 US cents in 2019, up from 12 US cents in 2018, and come in at 68 US cents in 2020.

Analysts’ recommendations

This stock with a market capitalization of approximately $2.9-billion is actively covered by six analysts, and all six analysts have “buy” recommendations.

The firms providing recent research coverage on the company are as follows in alphabetical order: Benchmark Company, Canaccord Genuity, Cormark Securities, Eight Capital, PI Financial and Roth Capital Partners.

Revised recommendations

Recommendations and target prices have been stable and have not changed over the past four months.

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Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 20.2 times the 2020 consensus estimate.

The average one-year target price is $30.12, suggesting the stock price has 12 per cent upside potential over the next 12 months.

Individual target prices are as follows in numerical order: $25 (the low on the Street is from Jenny Wang, the analyst at Eight Capital), $29, $29.50, $30, $33.50 and $33.74 (the high on the Street is from Michael Hickey, the Benchmark Company LLC).

Insider transaction activity

Year-to-date, there has not been any buying or selling activity in the public market reported by insiders.

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Chart watch

Technical analysis is limited given the stock’s brief trading history. The stock began trading on the Canadian Securities Exchange on Aug. 30, 2018.

Year-to-date, the stock price has rallied 78 per cent, outperforming its sector peers. For instance, year-to-date, shares of Canopy Growth Corp. (WEED-T), Aurora Cannabis Inc. (ACB-T), Cronos Group Inc. (CRON-T) and Aphria Inc. (APHA-T) are up over 18 per cent, 27 per cent, 23 per cent and 8 per cent, respectively. Furthermore, quarter-to-date, the share prices for these peers have languished while Charlotte’s Web’s share price has strengthened, rising over 40 per cent.

The stock has reasonable liquidity. The stock’s three-month historical daily average trading volume is over 800,000 shares.

Looking at key resistance and support levels, there is an initial ceiling of resistance around $28, and major overhead resistance around $32, near its record closing high of $32.18 reached on April 3. Looking at the downside, there is initial technical support around $25 and strong support at $20, which is close to its 50-day moving average (at $20.36) and its 200-day moving average (at $19.73).

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Positive BreakoutsAug. 9 close
AQN-TAlgonquin Power & Utilities Corp $17.15
AP-UN-TAllied Properties REIT $50.30
ACI-TAltaGas Canada Inc. $26.85
AIF-TAltus Group Ltd $37.50
USA-TAmericas Silver Corp $4.89
AKG-TAsanko Gold Inc $1.35
AI-TAtrium Mortgage Investment Corp. $13.90
BLX-TBoralex Inc $20.35
BAM-A-TBrookfield Asset Management Inc $67.19
CD-TCantex Mine Development Corp. $6.35
CGX-TCineplex Inc $25.60
CRH-TCRH Medical Corp $4.31
DRG-UN-TDream Global REIT $14.45
D-UN-TDream Office REIT $25.31
DPM-TDundee Precious Metals Inc $5.03
EMP-A-TEmpire Co Ltd $36.00
EIF-TExchange Income Corp $40.48
FTS-TFortis Inc $53.87
GCM-TGran Colombia Gold Corp. $5.60
HCG-THome Capital Group Inc $24.92
IAG-TiA Financial Corporation Inc. $54.63
INE-TInnergex Renewable Energy Inc $15.19
IPL-TInter Pipeline Ltd $24.81
JWEL-TJamieson Wellness Inc. $22.40
KPT-TKP Tissue Inc $8.52
LSPD-TLightspeed POS Inc. $48.61
MDI-TMajor Drilling Group International Inc $4.84
LABS-TMediPharm Labs Corp. $7.17
MRU-TMetro Inc $52.87
MAX-TMidas Gold Corp $0.89
MSI-TMorneau Shepell Inc $32.93
OR-TOsisko Gold Royalties Ltd $16.77
PVG-TPretium Resources Inc $17.09
QTRH-TQuarterhill Inc. $1.76
REAL-TReal Matters $8.95
RBA-TRitchie Bros Auctioneers Inc $49.24
SCL-TShawCor Ltd $18.36
SCL-TShawCor Ltd $18.36
SHOP-TShopify Inc. $488.36
SMT-TSierra Metals Inc $2.00
SVM-TSilvercorp Metals Inc $4.94
SIL-TSilverCrest Metals Inc. $8.15
RAY-A-TStingray Digital Group Inc. $7.25
X-TTMX Group Ltd $114.01
TXG-TTorex Gold Resources Inc $19.47
WPRT-TWestport Innovations Inc $4.29
Negative Breakouts
AFN-TAg Growth International Inc $45.44
AIM-TAimia Inc $3.24
ATA-TATS Automation Tooling Systems Inc $20.00
AUP-TAurinia Pharmaceuticals Inc $7.46
BAD-TBadger Daylighting Ltd $41.65
BDI-TBlack Diamond Group Ltd $1.63
BBD-B-TBombardier Inc $1.81
CCO-TCameco Corp $11.35
CFX-TCanfor Pulp Products Inc $8.92
CCL-B-TCCL Industries Inc $60.09
CIX-TCI Financial Corp $18.20
CMG-TComputer Modelling Group Ltd $6.42
DML-TDenison Mines Corp $0.58
DRT-TDIRTT Environmental Solutions $6.79
UFS-TDomtar Corp. $46.91
EMH-TEmerald Health Therapeutics Inc. $1.87
FSZ-TFiera Capital Corp $10.80
FM-TFirst Quantum Minerals Ltd $9.58
GH-TGamehost Inc $8.75
GSC-TGolden Star Resources Ltd. $4.20
HWO-THigh Arctic Energy Services Inc $2.96
HBM-THudBay Minerals Inc $4.50
HSE-THusky Energy Inc $8.95
IGM-TIGM Financial Inc $35.10
IFP-TInterfor Corp $10.96
LIF-TLabrador Iron Ore Royalty Corp $27.75
LNR-TLinamar Corp $37.92
LUC-TLucara Diamond Corp $1.38
DR-TMedical Facilities Corp $8.68
NFI-TNew Flyer Industries Inc $26.99
NXE-TNexGen Energy Ltd. $1.68
NWH-UN-TNorthWest Healthcare Properties REIT $11.51
NVA-TNuVista Energy Ltd $2.02
PSI-TPason Systems Inc $16.67
PIPE-TPipestone Energy Corp. $1.08
PBL-TPollard Banknote Ltd. $21.50
PD-TPrecision Drilling Corp $1.82
PLI-TProMetic Life Sciences Inc $13.80
RME-TRocky Mountain Dealerships Inc $7.04
RCI-B-TRogers Communications Inc $68.28
RUS-TRussel Metals Inc $18.78
STN-TStantec Inc $28.50
STLC-TStelco Holdings Inc. $12.98
SOX-TStuart Olson Inc $3.22
FIRE-TSupreme Cannabis Co Inc. $1.15
TRP-TTC Energy Corp. $63.50
TECK-B-TTeck Resources Ltd $22.25
TGO-TTeraGo Inc. $9.17
TFII-TTFI International Inc. $38.03
TWM-TTidewater Midstream and Infrastructure Ltd. $1.20
TOT-TTotal Energy Services Inc $6.51
RNW-TTransAlta Renewables Inc $13.14
TRQ-TTurquoise Hill Resources Ltd $0.60
TWC-TTWC Enterprises Ltd. $13.27
VET-TVermilion Energy Inc $20.60
WFT-TWest Fraser Timber Co Ltd $46.17
WEF-TWestern Forest Products Inc $1.24
YGR-TYangarra Resources Ltd. $1.55

Source: Bloomberg

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