Please ensure Javascript is enabled for purposes of website accessibility

Aurora Cannabis Stock: This Wall Street Analyst Thinks You Should Sell

By Joe Tenebruso – Sep 22, 2019 at 6:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One investment bank expects the marijuana leader's shares to fall as much as 25% from today's levels.

Aurora Cannabis (ACB) is one of the most popular marijuana stocks on the market today, but not everyone is a fan.

Stifel analyst W. Andrew Carter recently lowered his rating on Aurora Cannabis' stock to "sell" from "hold." He also reduced his target price to CA$5 ($3.77) from CA$7 ($5.28). 

A keyboard button labeled sell

Image source: Getty Images.

Carter argues that Aurora's fourth-quarter report indicates that the marijuana company is nowhere close to achieving profitability. Aurora generated a net loss of CA$297.9 million in its most recent quarter. Even its adjusted earnings, before interest, taxes, depreciation, and amortization (EBITDA) -- which excludes share-based compensation and a host of other charges and expenses -- came in negative, at a loss of CA$11.7 million. 

Although Carter acknowledged that Canada's impending legalization of cannabis derivatives -- such as edibles, infused beverages, and topicals -- should provide a catalyst for revenue growth, overall recreational marijuana sales are likely to be "more muted" than expected. In turn, Carter slashed his forecast for Aurora's 2020 full-year revenue to CA$485 million from CA$600 million. Carter also now expects Aurora to generate a larger EBITDA loss of CA$89 million, compared with his prior projection of CA$32 million. 

Moreover, Carter predicts that Aurora will need to raise "significant" capital before the end of Q1 2020. Unlike rivals Canopy Growth (NYSE: CGC), which received $4 billion in investments from beer giant Constellation Brands (NYSE: STZ) (NYSE: STZ-B), and Cronos Group (NASDAQ: CRON), which received a $1.8 billion investment from tobacco titan Altria (NYSE: MO), Aurora has yet to sell a significant stake in itself to a larger partner. As a result, Aurora has relatively low cash reserves, which Carter believes will make it challenging for it to invest in the potentially massive U.S. marijuana market.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Aurora Cannabis Stock Quote
Aurora Cannabis
ACB
$1.22 (%)

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.