Please ensure Javascript is enabled for purposes of website accessibility

Is Aurora Cannabis Finally Making a Recovery?

By Mark Prvulovic - May 21, 2020 at 6:20AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Are better-than-expected financial results enough to make this recovering pot stock a buy?

Aurora Cannabis (ACB -2.77%) used to be one of the biggest names in the cannabis market. However, over the past 12 months, shares have fallen by an astonishing 89% due to a number of concerns, such as the company's ongoing lack of profitability and the excessive goodwill on its balance sheet.

While there is still plenty of concern over Aurora's long-term financial health, investors were impressed by better-than-expected results from the company's fiscal third-quarter earnings report. Shares of Aurora ended up surging in response to the news, with many investors wondering whether the once-great cannabis giant is now on the rise again.

Let's take a deeper look at whether Aurora Cannabis is truly on the cusp of making a comeback, or if this fresh excitement needs to be checked a little.

Cannabis plant against a dark green background.

Image source: Getty Images.

The good

When you compare this quarter's results with just three months ago, the difference is immediately apparent. Whereas Aurora ended up reporting a staggering CA$1.3 billion net loss during its fiscal second-quarter results, this figure improved dramatically in the third quarter, to a net loss of CA$137.4 million.

If you're wondering how that's possible, the answer is that most of the CA$1.3 billion loss was due to a one-time goodwill and intangible asset adjustment, which came in at CA$920.9 million. However, even if we factor out these one-time charges, Aurora's financial figures are still showing some signs of improvement.

Operational losses have improved from the CA$119.6 million reported last quarter to CA$83.6 million. Given that Aurora had announced significant layoffs earlier this year to cut costs, it's not a surprising change, but it's nonetheless welcome news for shareholders hoping for a comeback. Net revenue has improved markedly from last quarter as well, growing by 34.8% from CA$56 million to CA$75.5 million. That's also quite a bit better than the CA$66.8 million some Wall Street analysts were expecting going into this quarter.

Aurora's cash position is tenuous, but manageable for the short term if its other financial metrics continue to improve. Its CA$230.2 million in cash on hand makes for a little less than six months' worth of funding if net losses don't change. Aurora also has the option to raise a further CA$352 million in equity financing should it need to do so.

The not so good

With things seemingly getting better for Aurora, does that mean now's the time to add this stock back into your portfolio? Well, not really. While it's easy to look at this quarter's net loss as a major improvement over three months ago, Aurora is still far from being profitable.

Other cannabis companies are outperforming Aurora both in terms of sales and profitability. To illustrate, Green Thumb Industries (GTBIF -2.26%), a U.S.-based cannabis company, reported first-quarter financial results earlier this month that put Aurora's to shame. Green Thumb announced $102.6 million in quarterly revenue, while net losses came in at a mere $4.2 million.

Aurora already went through an almost CA$1 billion goodwill writedown earlier this year, and investors shouldn't write off the possibility of further writedowns in the future. Aurora still has a staggering CA$2.9 billion in goodwill and intangible assets on its balance sheet, which is one of the highest levels in the entire cannabis industry.

Aurora's entire market cap is only CA$1.7 billion, and another major goodwill adjustment could easily wipe off a massive chunk of that, sending shares plunging. In comparison, Green Thumb Industries has a market cap of about $1.9 billion, while its total goodwill and intangible assets fall just shy of $800 million.

The verdict?

While Aurora's most recent financial results are definitely an improvement, the company's still not out of the woods financially. With Aurora still reporting sizable losses, an unexpectedly disappointing quarter could prove disastrous for the company's already precarious cash position.

Couple that with the massive goodwill figure that's still looming on Aurora's balance sheet, and investors have a lot to still be worried about with this Canadian cannabis giant. While there definitely are some interesting pot stocks to invest in right now, especially because so many of them are trading at steep discounts, it might be best to hold off on Aurora for the time being.

Mark Prvulovic has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Green Thumb Industries. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Aurora Cannabis Stock Quote
Aurora Cannabis
ACB
$1.76 (-2.77%) $0.05
Green Thumb Industries Stock Quote
Green Thumb Industries
GTBIF
$10.82 (-2.26%) $0.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
402%
 
S&P 500 Returns
129%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.