In what has to qualify as one of the bleakest stock analyses of the year, GLJ Research initiated coverage on Aurora Cannabis (NYSE:ACB) with a sell rating and a price target of exactly $0. In other words, analyst Gordon Johnson is indicating that the high-profile marijuana stock is completely worthless.
In his note on Tuesday, Johnson cited several factors he believes will drive Aurora's value into the ground. Chief among these is the company's rising debt, which lately has carried restrictive covenants that might make some of it difficult to retire.
The company's attempts to roll over that debt could prove extremely challenging, as could its efforts to shore up finances by issuing stock. It has floated numerous stock issues in its brief existence, and investors might not be willing to keep diluting their holdings.
Meanwhile, Aurora is burning cash and habitually posts losses on the bottom line; this dynamic has been in force for some time and is a major source of investor concern. In the company's most recently reported quarter, it posted a significant quarter-over-quarter decline in sales and a deeper EBITDA loss. Although it delivered a net profit, this was due to a fairly arcane accounting adjustment.
On the back of these dynamics, Aurora stock has not performed well in 2019, to put it mildly. So far this year, it has lost more than 55% of its value and, these days, trades barely above $2 per share.
The new research note also points out the problem of oversupply in Aurora's home market of Canada. According to the analysis, in 2020, roughly 3 million kilos of product will be produced in that country. However, current demand seems to be only for slightly more than 1 million kilos. As with many situations in which supply far outstrips demand, this has the potential to drive selling prices down significantly.
News of GLJ Research's analysis didn't quite push Aurora's stock down to $0, but it didn't do wonders for it, either. The shares closed 6% lower on the day.