The stock market has dropped in the past four months, but many equities have been southbound for much longer than that. The good news is that recent developments have provided great opportunities to purchase shares of excellent companies for a discount. But it's essential for investors to separate the wheat from the chaff.
Many companies whose shares are down are still best avoided, even at current levels. Let's look at two stocks that have dropped by more than 60% in the trailing-12-month period: Aurora Cannabis (ACB -7.72%) and Ocugen (OCGN 1.11%). These companies feature among the top 100 most popular stocks on Robinhood's trading platform, but neither is worth the trouble. Here's why.
1. Aurora Cannabis
The market reacted positively to Aurora Cannabis' latest earnings report, which was for the second quarter of its fiscal year 2022, ending on Dec. 31. Shares of the cannabis grower and retailer jumped following the announcement. In the update, Aurora Cannabis reiterated its goal to achieve "profitability" during the first half of its fiscal year 2023 (that is, during the second half of this year).
But there are several things of which investors should be aware. First, Aurora Cannabis' goal is to be profitable on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis in the second half of its fiscal year 2023. That would be a step in the right direction for a company that has consistently shown red ink on the bottom line. But that's not the same as being profitable.
Second, while a company might be a good investment even if it is still reporting net losses, Aurora Cannabis' prospects look questionable.
During its Q2 2022, Aurora Cannabis' net revenue was 60.6 million Canadian dollars ($47.6 million), representing a 1% sequential increase but a 10% year-over-year decrease. The company is struggling with competition in the Canadian market that is affecting its average net selling price per gram of dried cannabis, which decreased by 10% sequentially to CA$4.20 ($3.29) during the quarter.
This net selling price also decreased by 6% year over year. Furthermore, compared to the year-ago period, Aurora Cannabis' kilograms of marijuana sold dropped by 14% to 13,043. Year-over-year decreases in kilograms of marijuana sold and average net selling prices don't bode well for Aurora Cannabis. In fairness, it likely isn't all the company's fault. The complex rollout of cannabis retail licenses in Canada starting in late 2018 severely harmed the market's progress.
Still, that only gives investors one more reason to avoid Aurora Cannabis -- a company that, as far as I can tell, has no meaningful, durable competitive edge that will help it remain a dominant force in this space for years to come while delivering solid financial results. That's before we add Aurora Cannabis' share dilution problems to the equation.
Considering all these factors, it isn't worth investing in this cannabis stock right now, and those who still hold shares would do well to close their positions as soon as possible.
Ocugen is still hoping to enter the coronavirus vaccine market in North America. Its candidate, Covaxin, has yet to be approved in the U.S. or Canada. As the pandemic drags on, Ocugen's chances continue to increase. The company recently released the results of a poll it commissioned purporting to show that roughly 73% of Americans would gladly welcome additional COVID-19 vaccine options that are developed from a more traditional method.
Some of the current market leaders, including Pfizer's Comirnaty and Moderna's mRNA-1273, are mRNA-based products, a relatively new vaccine development method. Covaxin fits the more traditional approach, and based on the results of this poll, it seems as though Americans would, by and large, be happy to see it hit the market.
But here's the bad news for Ocugen. Even if we take the results of this poll at face value, it is the U.S. Food and Drug Administration (FDA) that decides whether to approve vaccines. Will the opinions of the public on this issue significantly move the needle for the agency? Maybe, but if the FDA thought we needed additional vaccines, it would have agreed to grant emergency use authorization (EUA) to Covaxin.
Instead, the FDA advised Ocugen to pursue full approval for Covaxin after running a late-stage clinical trial for the candidate in the U.S., a process that will take significantly longer.
The health regulatory body is in no hurry to see Covaxin on the market, which speaks volumes. The same thing seems to be happing north of the border. Since August, Canadian authorities have been holding onto Ocugen's EUA application, but a decision has yet to come down.
In December, Dr. Anthony Fauci, Chief Medical Advisor to the U.S. President, said the following in response to a question about the delay in approval for Covaxin in the U.S.: "We have enough vaccines, the best vaccines available, in the United States. I'm puzzled by that question. We have more vaccines than we need right now."
Fauci's words carry considerable weight. Although there is no law against approving vaccines as long as they prove safe and effective, Ocugen's candidate certainly isn't a priority for regulators right now. By the time it hits the market in the U.S. -- if it does at all -- no one knows what the vaccine landscape will look like, especially with Fauci recently opining that the full-blown phase of the pandemic may be ending.
Furthermore, Ocugen will only keep 45% of the profits Covaxin will generate in North America. That's the deal it signed with the company that originally developed this vaccine, India-based Bharat Biotech. Ocugen has no other products anywhere close to approval, and it is consistently unprofitable. That's why it isn't worth getting anywhere close to this biotech stock at the moment.