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3 Reasons Investors Should Be Concerned About Aurora’s Most Recent Earnings Report

By David Jagielski – Sep 19, 2019 at 7:30AM

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Besides sales growth, there weren't many reasons for investors to get excited about the company's Q4 results.

Aurora Cannabis (ACB 0.82%) released its quarterly results last week, which failed to impress investors as the stock has fallen since then. Although the company showed significant sales growth from the previous year, there were still some areas of concern that should have investors thinking twice about whether to buy the stock today.

The company fell short of a forecast that it made just a month earlier

Perhaps the most disappointing result of all was that the company's net revenues of 98.9 million Canadian dollars fell short of the range that Aurora said it expected its sales to fall within just a month earlier. In an update issued by the company, Aurora expected sales, net of excise tax, to fall between CA$100 million and CA$107 million. Missing analyst expectations isn't uncommon for the industry, but a company missing its own forecasts that it updated just a month earlier is a whole different story.

For investors, that's a big problem: If the company can't forecast what it will report one month in advance, it's hard to believe that any guidance the company issues will be any more accurate. It would be hard to trust Aurora's guidance for a year if it's struggled with such a short-term projection on results that have already happened. It doesn't instill a lot of confidence in the company's projections, and that's a big problem, as it may have investors second-guessing other forecasts, as well. 

cannabis plants in a greenhouse

Image Source: Getty Images.

Aurora burned through CA$192 million to fund its operating activities

Cash burn has been a big problem for many marijuana companies, and Aurora is certainly no exception. For the full year, the company confirmed just how much it has used: CA$192 million. That's without taking into account the company's investing activities, which burned through another CA$312 million.

While many investors may be focused on whether or not a company is profitable, cash flow is what's going to keep the lights on and the business running. Aurora's been spending aggressively to grow its business and things haven't been improving, as the company still used CA$4.6 million in cash to fund its operations in Q4. 

Investors should care about cash flow because the company has had to issue a lot of shares. If Aurora doesn't start generating cash flow from its operations, this trend may continue and result in even more dilution. Currently, the company has more than 1 billion shares outstanding, compared to a couple of years ago when there were fewer than 400 million shares.

Still no big moves from the company

When a company releases quarterly earnings, it can be a time for a big announcement, especially at year-end. However, Aurora has been quiet in terms of big moves lately. It's been about six months since the company announced it had brought on billionaire investor Nelson Peltz as an advisor, presumably to help find potential partnerships for Aurora, but there's been nothing major to announce on that front since then.

Meanwhile, other cannabis producers have been linking up with companies in other industries to not only strengthen their financial positions, but also take advantage of their key competencies.

Takeaway for investors

Aurora has done a good job of growing within Canada, but by stretching itself into other markets and perhaps not doing enough to convince investors of the growth that it's working on in North America, it may be getting difficult for investors to justify the company's $5 billion-plus market cap.

It's no surprise that the stock has been falling. There are simply better marijuana stocks to invest in that have much more appealing growth opportunities in North America.

David Jagielski 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.

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