March 31, 2020, 8:20 a.m. EDT

Should You Consider Buying Aurora Cannabis?

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  • Global financial markets have nose-dived amid the COVID-19 outbreak. So, the recent decline provides an excellent opportunity to buy quality stocks, which are available at an attractive valuation.

Aurora Cannabis /zigman2/quotes/210559470/composite ACB -7.99% is one of the few cannabis companies that has lost more than half of its market capitalization this year. As of Monday, Aurora Cannabis was trading at 1.29 Canadian dollars--a fall of 53.8% so far this year. Last year, the stock lost 58.8% of its stock value. Currently, the company is trading 48.3% higher than its 52-week low of 0.87 Canadian dollars and 89.8% lower than its 52-week high of 12.62 Canadian dollars. So, should you consider buying Aurora Cannabis? Let's look at analysts' recommendations.

Analysts' recommendations for Aurora Cannabis

On Monday, Brian Acker of Acker Finlay stated that he wouldn't buy Aurora Cannabis, as reported by Cantech Letter . On BNN Bloomberg's "Market Call" program, he stated that cannabis companies had a market capitalization of 100 billion dollars during their peak. Now, they have fallen to a fraction of that level. Acker is concerned that not many cannabis companies have become profitable yet. He thinks that it's an opportunity to buy good quality stocks, which are available at discounts.

On Aurora Cannabis, Acker said , "Why would you look at a piece of crap like this, really? So forget Aurora, there's so many other good things out there to look at and buy and make money on with a hell of a lot less risk than this one. So forget about it move on. This is an opportunity of really upgrading the quality of your portfolio and. And that's what you should do."

Since Aurora Cannabis reported its second-quarter earnings on February 14, Canaccord Genuity, CIBC, Cowen, Bryan Garnier, and MKM Partners have all lowered their target prices. Cowen also downgraded the stock from "neutral" to "sell." As of Monday, 18 analysts cover the company. Among the analysts, 12 recommend a "hold," one recommends a "buy," and five recommend a "sell." On the same day, analysts' consensus target price was 1.86 Canadian dollars. The target price represents a 12-month return potential of 44.1%.

Valuation multiple

The decline in Aurora Cannabis's stock price has also lowered its valuation multiple. As of Monday, Aurora Cannabis was trading at a forward EV-to-sales multiple of 5.0x. So far, the multiple has declined compared to 6.6x at the beginning of this year. As of Monday, Aurora Cannabis was trading at a premium compared to Aphria /zigman2/quotes/207425803/composite APHA +2.28% and HEXO /zigman2/quotes/200008967/delayed CA:HEXO +21.59% . They were trading at 1.7x and 2.4x, respectively. Meanwhile, Canopy Growth /zigman2/quotes/202205609/delayed CA:WEED +9.67% was trading at a forward EV-to-sales multiple of 8.2x on the same day.

My take on Aurora Cannabis

By the end of the second quarter, Aurora Cannabis had 156 million in cash left, which excludes 45 million Canadian dollars of restricted cash. The company incurred an operating cost of 149.5 million in the second quarter. So, the cash position looks weak. In the first two quarters of fiscal 2020, the company issued 77.5 million shares under its "At-the-Market" program. Notably, the program has generated gross proceeds of 325.2 million Canadian dollars. The weak cash position, dilution due to the new equity offerings, and rising debt are concerns for Aurora Cannabis. I think that investors should look at other options, like Canopy Growth and Innovative Industrial Properties , in the cannabis space.

COMTEX_364028482/2648/2020-03-31T08:20:05

/zigman2/quotes/210559470/composite
US : U.S.: NYSE
$ 16.01
-1.39 -7.99%
Volume: 26.01M
May 22, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.76 billion
Rev. per Employee
$94,401
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/zigman2/quotes/207425803/composite
US : U.S.: NYSE
$ 4.04
+0.09 +2.28%
Volume: 13.85M
May 22, 2020 4:00p
P/E Ratio
45.39
Dividend Yield
N/A
Market Cap
$1.08 billion
Rev. per Employee
$147,410
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/zigman2/quotes/200008967/delayed
CA : Canada: Toronto
$ 1.07
+0.19 +21.59%
Volume: 16.70M
May 25, 2020 11:40a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$302.65 million
Rev. per Employee
N/A
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/zigman2/quotes/202205609/delayed
CA : Canada: Toronto
$ 29.72
+2.62 +9.67%
Volume: 1.23M
May 25, 2020 11:40a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$9.48 billion
Rev. per Employee
$150,142
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