Aurora Cannabis (NASDAQ:) is a Canadian vertically integrated cannabis producer and supplier.

This stock has a neutral rating. (See ACB stock charts on TipRanks)

Earnings

Aurora Cannabis recently released its second-quarter earnings. The main driver of the revenue decline was a 19.9% decrease in revenues year over year. This is due to a 45% drop in consumer sales caused by COVID.

The good news is that Aurora, legal-cannabis founder, managed to decrease EBITDA losses in the range of C$13.9million. This represents a C$17.6million increase over the previous year. Aurora also added C$404.3 million in working capital since last year, and now holds cash & short-term investments worth C$440.9 Million.

Valuation

Valuation methods suggest that the stock is currently trading at its fair asset value.

Aurora’s fair price is $6.36 in an asset-based appraisal. This contrasts with the assertion that the stock has a low value based on its multiples.

Aurora’s trailing price-to-book ratio is 78.2% better than the industry average, while its trailing price-to-sales ratio is 26% better than the industry average.

However, these could be part of an investment trap.

Aurora has a cost of capital of 18.5%, with a negative earnings yield (240.4%), and a negative return on invested capital (14.2%).

This extremely disappointing pricing data suggests that Aurora should be trading at a negative price.

Technicals

Optimists will most likely look at the price-to-book and price-to-sales ratios, and a recovery in consumer sales, but the technicals suggest that Aurora is set to trade flat.

The RSI (Relative Strength Index) reads at 49.4, meaning the stock isn’t near the oversold benchmark (below 30). Volume is also flat which suggests that a sudden change in the direction of stock prices is unlikely.

U.S. Cannabis Appeal

A new systemic risk for Aurora is the appeal of U.S. cannabis stocks. Although U.S. marijuana companies have reached earlier legal stages that Canadian stocks, it is expected that U.S. deregulation will continue. This will support U.S. stock prices.

U.S. cannabis ETFs will become more popular in order to profit from the market at an early stage. Because they are predominantly penny stocks and have low supply, individual stocks can still be difficult to find. Thus the ETF hype.

Wall Street’s Take

Wall Street thinks Aurora is a Moderate Sell, based on six Holds and four Sells assigned in the past three months. An average Aurora price target $6.35 suggests a potential downside of 6.6%

Final Word

Aurora is anticipated to remain flat for the time being. No identifiers are available that can indicate price movements in any direction.

Disclosure: Steve Gray Booyens had no position at the time this article was published.

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