Aurora Cannabis (NYSE:ACB) has struggled to grow its business, and its investors have grown accustomed to seeing red on its bottom line. The company has failed to post an operating profit or even achieve profitability on an adjusted EBITDA basis. Share issues, rather than cash-positive operating activities, have been key to ensuring there is enough money flowing into the business to keep the lights on. And that's been frustrating for investors, who continue to have their ownership diluted.

But there is hope that, after all the cost-cutting efforts and layoffs Aurora has been making over the past 12 months, its operations should be much leaner, meaner, and in better overall shape moving forward. And the company is coming off an improved quarter in which its bottom line showed signs of progress -- or did it? Let's take a closer look at how Aurora performed in its most recent quarter and whether investors should be more bullish on this troubled pot stock.

Cannabis plants

Image source: Getty Images.

A look at the company's recent results

On Feb. 11, Aurora released its second-quarter results for the period ending Dec. 31, 2020. The company did show progress on its bottom line, with an adjusted earnings before interest, tax, debt and amortization (EBITDA) loss of 16.8 million Canadian dollars falling sharply from the CA$57.9 million loss that it posted in the first quarter, for the period ending Sept. 30, 2020. This was despite revenue of CA$67.7 million showing no growth from the previous period, making it the third quarter in a row now in which that exact scenario has happened. However, Aurora anticipates more of an improvement in the EBITDA number in the third quarter after reductions to its headcount a few months ago. Those cost savings haven't been fully realized on the company's latest earnings report.

Without sales growth and continuous losses, Aurora isn't giving investors much of a reason to invest in the business. While improving adjusted EBITDA is a positive, the company has pushed back its goal of breaking even multiple times. And although it does appear to be on the right track, investors need to remember that adjusted EBITDA is not a GAAP number, meaning that it isn't comparable from one business to another; the company effectively chooses what to include in the calculation.

A closer look at the period shows that Aurora's operating loss was CA$47 million -- an increase of 11.2% from the CA$42.3 million loss it incurred in Q1. The company did bring down its operating expenses by CA$4.5 million, or 6.6%, from the previous quarter. However, that was offset with declining gross profits, as Aurora netted just CA$17.3 million after cost of sales this past quarter compared with CA$26.6 million in Q1. The company said the drop in those margins was a result of it scaling back production levels at Aurora Sky in addition to a CA$1.8 million increase in expenses that were related to net returns, price adjustments, and provisions.

The challenge with marijuana companies is that there is often a lot of noise on their financials. That can make it difficult for investors to assess just how well a business is doing, and Aurora is no exception. While there were some positives to take away from the company's most recent quarterly performance, there may not be enough of an overall improvement to justify the stock's current valuation.

Is Aurora's stock too expensive?

Since the start of 2021, shares of Aurora have risen more than 30%. And while that's lower than the Horizons Marijuana Life Sciences ETF and the 60% gains it has made over the same period, it's well above the 3% that the S&P 500 is up by. At a $2.15 billion valuation, investors are paying 6.4 times revenue for shares of Aurora (since profits are non-existent, a multiple of sales is a more appropriate metric to use here). And that looks favorable when comparing it to rival cannabis producers Canopy GrowthAphria, and HEXO:

ACB PS Ratio Chart

ACB PS Ratio data by YCharts

Its valuation doesn't appear to be all that high given what investors are paying for other stocks in the cannabis industry. But that's because investors are often willing to pay higher multiples for businesses that are doing well while paying lower premiums for companies like Aurora, which appear to be riskier. Aurora's constant need for capital boosts is another reason why investors might be hesitant. Over the past two quarters, it has issued shares to raise CA$493.4 million -- up 53.8% from the prior-year period.

All of that dilution can make the valuation a bit misleading, because the share price will only decline if Aurora continues to issue more shares due to its cash burn. In the six-month period ending Dec. 31, 2020, it spent CA$172.7 million just to fund its operating activities. Although that's a decline from CA$229.6 million a year ago, it's still a problem that investors can't afford to ignore.

While Aurora's stock may seem cheap, the price tag may not be enough of a reason to look past the company's current struggles. 

Should you invest in Aurora Cannabis?

Aurora's latest results don't do enough to convince me that the stock is a buy or destined for a turnaround. There are simply too many problems to worry about here, and that could keep the stock price down. From a lack of growth to tons of cash burn, the business still has a long way to go in proving to investors that it's anything but a risky investment. 

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.