Aurora Cannabis (ACB 18.15%) is a shadow of its former self. The cannabis producer has slashed its global operations. It's no longer the leader in the Canadian adult-use recreational cannabis market, and its hopes of landing a major partner from outside the cannabis industry have fizzled.
For most of the last five years, Aurora ranked behind only Canopy Growth (CGC 15.03%) among Canadian cannabis producers based on market cap. The company has now fallen to fifth place, with its share price plunging more than 90% over the last 12 months. Meanwhile, Canopy remains at the top. But there's at least one area where Aurora Cannabis outshines Canopy Growth.
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No contest
As a result of the shellacking that its stock has taken going back to March 2019, Aurora's valuation looks more attractive than Canopy's.
Neither company is profitable yet, so we can't use earnings-based valuation metrics. But we can compare the price-to-sales (P/S) multiples of the two marijuana stocks. Aurora's shares currently trade at around 2.4 times sales. That's only a fraction of Canopy's P/S multiple of 16.
In the most recent quarter, Aurora generated total net revenue that was nearly two-thirds the level of Canopy's net revenue. However, Aurora's market cap is a little over one-tenth of the size of Canopy's market cap. That represents a major disconnect between the valuations of the two companies.
Aurora is also much closer to delivering positive earnings before interest, taxes, depreciation, and amortization (EBITDA) than Canopy is. This gives it a more attractive valuation using the enterprise value-to-EBITDA metric. Aurora's EV/EBITDA multiple is a negative 0.27 compared to Canopy's EV/EBITDA of negative 3.22.
Cheap for a reason
Any way you look at it, Aurora Cannabis is a much cheaper stock than Canopy Growth is. Unfortunately, Aurora is cheap for a reason -- or rather, for several reasons.
Aurora continues to post huge losses each quarter. The company's write-off of 1.8 billion in Canadian dollars in goodwill impairment charges in the fourth quarter didn't reassure investors in the least. Even without that major impairment charge, though, Aurora would still have lost money in its fiscal 2020 fourth quarter ended June 30, 2020.
Perhaps the most worrisome thing in Aurora's Q4 results, however, was that the company expects its sales to decline in the next quarter. The low end of Aurora's net revenue guidance for fiscal 2021 Q1 reflects a double-digit percentage drop from the previous quarter.
Aurora's loans top CA$200 million, with another CA$327 million in convertible debentures. As of June 30, the cannabis producer's cash stockpile totaled a little over CA$162 million. Aurora's financial position and expectations of a revenue decline aren't going to give any investor warm, fuzzy feelings about the company's future.
An advantage Aurora would gladly lose
Aurora needs a dramatic improvement in its financial performance to turn things around. One good start would be for Aurora to generate positive adjusted EBITDA. The company now expects to achieve that goal by fiscal 2021 Q2, a quarter later than its earlier projection.
Another must is for Aurora to return to strong revenue growth. New CEO Miguel Martin has stated that he plans to "reposition" Aurora in the Canadian recreational cannabis market. Perhaps his efforts will pay off.
In the meantime, Aurora Cannabis seems likely to continue trouncing Canopy Growth in the area of valuation. But it's an advantage that the company would be more than glad to lose.
