Why Curaleaf Stock Dropped After Earnings

Cannabis company Curaleaf (OTC: CURLF) stock slipped 2% through 10:05 a.m. ET Friday after meeting analyst forecasts for earnings, but just missing on sales last night.

Wall Street wasn't super optimistic about Curaleaf going into earnings, forecasting a $0.07-per-share loss -- which is exactly how much Curaleaf did end up losing. Sales, though, were supposed to be $311 million for Q1, and Curaleaf reported only $310 million.

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Curaleaf Q1 earnings

Not all the news was bad. Sales shrank 9% year over year, but gross profit margin on those sales expanded by 260 basis points to 50%. The company still reported a loss per share from continuing operations of $0.07.

Arguably most important of all, though, Curaleaf reported positive free cash flow (FCF) for the quarter, a rarity among marijuana stocks. Indeed, Curaleaf has generated positive free cash flow for the past five straight quarters, according to data from S&P Global Market Intelligence.

True, free cash flow declined year over year, falling from $30.8 million to just $23.9 million (or $25.5 million, as Curaleaf counts it). But it was positive either way.

Is Curaleaf stock a buy?

Over the past 12 months, Curaleaf has generated nearly $63 million in positive free cash flow, despite reporting generally accepted accounting principles (GAAP) losses of $228 million. At a market capitalization of $650 million, therefore, the stock sells for just a little over 10 times FCF. To justify buying it, you'd probably want the stock to be growing earnings at about 10% or even 20% a year.

And the best news of all: According to Wall Street analysts, Curaleaf could very likely double its FCF over the next two years. To my eye, this makes Curaleaf stock a buy.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.