Aurora Cannabis' (NYSE:ACB) stock has been sinking like a stone lately. To put into perspective its massive decline: Troubled pot stock CannTrust Holdings is down 59% over the past six months. Aurora, however, has crashed more than 70% during the same period, while the Horizons Marijuana Life Sciences ETF, which contains a broad mix of pot stocks, is only down 44%.

Aurora is a risky buy, but given how much of a sell-off there's been, it could be a sign that there's been an overreaction in the markets. Let's take a closer look at if investors should consider buying shares of the stock should it dip below $2 again.

Is Aurora worth a market cap of $2 billion?

One of the hardest things to do with pot stocks is properly value them. Without much of a history and valuations being all over the place these past few years, narrowing down just how much public cannabis companies are worth is more of an art than it is a science. And that only complicates the process of determining whether a stock is a buy or not. One way we can assess Aurora's value is by looking at its sales and comparing that to the relative valuation of its peers.

Stock price crashing as investor holds his head.

Image source: Getty Images.

At $2 per share, Aurora's market cap is a little over the $2 billion mark. Its total revenue over the past four quarters is 294 million Canadian dollars, which computes to approximately $226 million in U.S. currency. That means that at a $2 billion market cap, Aurora is trading at less than nine times the revenue it generated in 12 months. That certainly puts the stock in a good light compared to its rival Canopy Growth, which trades at 32 times its revenue, and it's cheaper than Tilray as well, which investors value at 16 times sales. But when compared to Aphria's multiple of about four times sales, Aurora can still look expensive.

Nonetheless, the figures do suggest that based on its top line, investors may have undervalued Aurora, especially as the company continues to grow and add to its sales.

But it may still not be worth the risk

Investors may not value Aurora as highly as its peers largely because of the risk surrounding the company. News that Aurora halted production at two of its facilities and that it's looking to conserve cash definitely set off red flags for many investors.

And when there's added risk involved, investors normally aren't as willing to pay a similar multiple of earnings or sales for a company as they would for a stock without those same problems. That can explain why Aurora trades below Tilray and Canopy Growth's price-to-sales multiples, but it's not far from HEXO, which trades at around 10 times sales and where a lack of cash is a growing problem as well

Once investors account for risk, it makes it more difficult to place a much higher valuation for Aurora than where it is today, especially given its poor results. Net losses of CA$384 million over the past 12 months and negative free cash flow of CA$669 million during that time don't inspire much hope that the company is on the right path. With total cash of CA$192 million, there isn't a lot on the books to support Aurora's cash burn, and that makes the stock a very high-risk buy. 

Investors should stay far away from Aurora, even if the price drops

If a company's business is in trouble, then it's not worth investing in, regardless of the price you pay for it. If Aurora runs out of cash and can't continue operating, its business will have no value beyond its net assets. And even those valuations can be suspect given the gains and losses marijuana stocks often have on earnings reports relating to their assets.

Unless you're a speculator, you shouldn't buy shares of a business like Aurora where cash burn is still a big concern moving forward. There's too much risk involving the company today and investors are better off with stocks that offer more stability.