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Down 66% in 2020, Is Aurora Cannabis Now a Buy?

By Sushree Mohanty - Dec 28, 2020 at 9:51AM

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Always an investors' favorite, is this Canadian pot stock a buy at the dip?

Most cannabis companies had a bright 2020 as marijuana sales soared amid the pandemic. Higher revenue growth, profits coming in, and lucrative expansion plans were combined with higher stock performance. 

But Canada-based Aurora Cannabis ( ACB 0.30% ) has sunk 66% in 2020, compared with the 3.4% decline in the benchmark Horizons Marijuana Life Sciences Index ETF ( HMLSF 1.83% ). So what is this company not doing right?

Marijuana leaf on U.S. dollar bills.

Image source: Getty Images.

Aurora did some drastic cost-cutting in June to lower its expenses and achieve positive EBITDA, but its first-quarter 2021 results (for the period ending Sept. 30) saw total net revenue sink 8% to 67.8 million Canadian dollars ($52.7 million).

It has no strong financial backing to support any of its growth strategies, like Canopy Growth has with U.S. beverage giant Constellation Brands. Aurora has time and again failed to meet its guidance of achieving positive EBITDA. 

Moreover, its cash position along with lower revenue growth doesn't allow the company to launch innovative cannabis derivatives (like vapes, edibles, and beverages). Meanwhile, peers are taking advantage, with Canopy Growth leading in derivatives, beverages in particular. 

We will learn if profitability is on the horizon when we get results from the second quarter of fiscal 2021, which are expected in February. Management has assured that it will achieve positive EBITDA in the quarter. Aurora has been bad at managing its operating expenses, the result of which has been consistently negative EBITDA. In its recent first quarter, EBITDA losses came in at CA$57.8 million, compared with a loss of CA$33 million in the year-ago quarter. 

ACB Chart

ACB data by YCharts.

This pot stock is not a buy on the dip. I would suggest waiting for second-quarter results, which will give a better idea if the company succeeded in delivering on its promises and its plan for 2021. Until Aurora Cannabis shows some fruitful numbers, this is one marijuana stock to avoid.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Constellation Brands, Inc. Stock Quote
Constellation Brands, Inc.
STZ
$233.06 (-0.69%) $-1.62
Aurora Cannabis Stock Quote
Aurora Cannabis
ACB
$6.59 (0.30%) $0.02
Canopy Growth Stock Quote
Canopy Growth
CGC
$10.90 (-0.37%) $0.04
Horizons Marijuana Life Sciences Index ETF Stock Quote
Horizons Marijuana Life Sciences Index ETF
HMLSF
$5.57 (1.83%) $0.10

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

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