Did you know that in five years, shares of Aurora Cannabis (ACB -1.15%) have plunged an incredible 99%? And even as the company has shifted from focusing on growth to cutting costs and improving its bottom line, that hasn't led to a recovery in its share price; last year, the stock still fell 83%. In 2020, the company did a 1-for-12 reverse stock split to help get it comfortably up over $1 to stay listed on the NYSE and to give it a bit of a buffer as well, presumably so it wouldn't need to do another reverse split for some time.
But here we are nearly three years later, and Aurora Cannabis is back to trading at around $1 per share. Is another reverse stock split coming, and if so, should investors dump the stock now?
The company's financials aren't showing progress
It would require a copious amount of optimism to be bullish on Aurora's prospects right now. And that's because despite the company laying off staff and shutting down plants, it remains unprofitable and it has struggled to generate any sales growth whatsoever.
ACB Revenue (Quarterly YoY Growth) data by YCharts
Why things could get worse -- this week
Investors should brace for what could be a tough month for the stock as Aurora Cannabis reports its latest earnings numbers this Thursday (Feb. 9).
On its last earnings release in November, the company reiterated that it was on track for reaching adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profitability by the end of 2022 -- that's this coming quarter. Last quarter, its adjusted EBITDA loss totaled 8.7 million Canadian dollars. The company is getting close to profitability -- on an adjusted basis -- but if it fails to meet that target, watch out because the sell-off could be swift and severe.
And at the same time, I'm not convinced that achieved adjusted EBITDA profitability is going to make up for what's still a disappointing business that is burning through cash and struggling to grow. There are plenty of risks but not a whole lot of potential upside in the company's upcoming earnings release.
Conditions in the industry also don't look great
Aurora's challenges aren't exclusive to its own business. Other cannabis companies are struggling too. Last month, multi-state marijuana operator Curaleaf Holdings announced it was shutting down its production and cultivation facilities in three states -- California, Colorado, and Oregon.
Cannabis companies by and large are struggling with growth. Inflation certainly doesn't help with the affordability of legal pot, and it may only end up driving people back to the illicit market. And the competition is one of the reasons Curaleaf cited for giving up on what are three of the industry's largest markets.
Meanwhile, now that the Democrats have lost control of the House, the prospects for marijuana reform and legalization also look bleaker than ever. The outlook isn't encouraging in the marijuana industry right now, and that is only going to make investors more bearish on pot stocks in general.
Investors should brace for a reverse split
Aurora Cannabis finished last week above the $1 mark so a reverse split isn't imminent. But at this rate, given the company's poor results and the struggling cannabis industry as a whole, it's really only a question of if and not when a reverse split will happen as it's hard to see a scenario where Aurora's stock price doesn't continue to fall further this year.
Technically a reverse split won't change your investment in the stock as the value remains the same and only the number of shares you own changes. However, the negative press can often send shares of a pot stock down since the announcement serves as a reminder that the business isn't doing well.
Investors should consider selling their shares of the company as there's little reason for optimism at this point, and the stock's freefall may only get deeper.
