Aurora Cannabis (ACB -0.15%) is one of the most popular stocks in the cannabis industry. Nonetheless, the company has struggled to achieve profitability and positive cash flow on a consistent basis since inception.
This was due to a slew of headwinds, such as fierce competition, regulatory uncertainty, and high excise taxes, among many other factors. In response to these hurricane-force headwinds, the pot titan's share price has plummeted by almost 99% over the past five years.
However, there are some encouraging signs that Aurora Cannabis may be turning a corner and becoming a more attractive investment opportunity. Roughly three years ago, the company implemented several strategic moves and cost-saving measures to improve its:
- financial performance
- market position in key segments like medical
- long-term growth potential
Here are three reasons Aurora Cannabis stock may finally be a buy.
Image source: Getty Images.
1. Cost-cutting and restructuring
Aurora Cannabis has been implementing a comprehensive plan to reduce operating expenses, improve margins, and streamline operations. The company has closed or sold several of its production facilities, reduced its workforce, and significantly reduced its debt.
As a result of this strategic initiative, Aurora Cannabis expects to achieve positive free cash flow in calendar year 2024. Wall Street wasn't expecting the company to hit this key financial milestone until at least calendar year 2026.
2. International expansion
The company has an exceptionally strong presence in the international medical cannabis market, with operations in several high-value territories like Australia, Poland, and Germany. Moreover, it's one of three domestic producers in Germany, which is the largest cannabis market in Europe in terms of sales. This market should become considerably more business-friendly in the years ahead.
3. Valuation and outlook
Aurora Cannabis currently sports a market cap of approximately $361 million. In 2023, global medical cannabis sales are expected to surpass $16.6 billion, and this figure is forecast to balloon to nearly $66 billion by 2030, according to a report by Grand View Research. Aurora Cannabis, as a leader in medical cannabis, should be able to capitalize on this favorable tailwind.
Key takeaway
Aurora Cannabis isn't without risk. The company still faces challenges, such as:
- Legal uncertainty in the multiple key geographies
- Burdensome and costly regulations in the Canadian market
- Competition from illicit sources
Moreover, the company has a history of diluting shareholders on a regular basis. In the past three years alone, Aurora Cannabis has more than tripled its outstanding share count. As a result of these risk factors, investors probably shouldn't go overboard with this low-priced marijuana stock.
ACB Average Diluted Shares Outstanding (Quarterly) data by YCharts.
That being said, Aurora Cannabis has made clear strides toward becoming a leader in the global medical marijuana space, improving its operating efficiency, and cutting out unnecessary and unprofitable growth initiatives over the past three years. Hence, risk-tolerant investors might want to consider nibbling at this marijuana stock as its turnaround strategy starts to bear tangible results.
