Aurora Cannabis (Aurora Cannabis Stock Quote, Chart, News TSX:ACB) has fallen to lows not seen since the early days of Canada’s pot stock mania.
Will it go lower? Ross Healy of Strategic Analysis Corp thinks that’s not likely and now may be a good time to buy the struggling cannabis name.
The whole cannabis sector has had a miserable six months, weighed down by issues like the demolition of once-reputable CannTrust Holdings and, more recently, a rise in vaping-related illnesses which has spooked investors.
But the most troubling factor may the distinct lack of profits coming from industry leaders like Canopy Growth Corp, Tilray and Aurora. All that growth potential has so far amounted to not much in the way of positive earnings, even now as we pass the one-year mark in rec pot legalization in Canada.
And for Aurora, thought to have one of the largest cannabis footprints on the planet, the numbers came in stark and clear with its latest quarterly report delivered in September.
There, the Edmonton-based company reported $98.9 million in net revenue for its fiscal fourth quarter ended June 30, a marked improvement over the $19.1-million top line a year earlier but lower than the $108.25 million consensus that analysts had posted and glaringly under the $100 million to $107 million guided by management just a month earlier.
In terms of EBITDA, Aurora had also called for positive earnings by the end of Q4 but ended up with an adjusted loss of $11.7 million.
Management put the blame on Canada’s slower rollout of retail stores, as regulators in key provinces like Ontario have taken longer than expected to bring legal weed to consumers.
“If there were a broader retail infrastructure, and more stores available in Canada and open, that pretty likely would have made the difference toward us reaching that milestone,” said chief corporate officer Cam Battley, speaking to BNN Bloomberg about Aurora’s revenue miss.
Regardless, the stock sank lower on the fourth quarter release and hasn’t looked back, falling 21 per cent over the month of September and then another 18 per cent so far in October. ACB currently sits at $4.74, which is a long way down from the $15.00 highs it was hitting one year ago and even the $13.00 hit earlier this March.
But there’s likely a bottom to all of this, said Healy, chairman at Strategic Analysis, who spoke to BNN Bloomberg Tuesday.
“The stock is approaching what should be good technical support at about $4.50, that’s its book value. It has a very strong balance sheet but after that, that’s all. There’s no earnings and therefore there’s no fair market value. So, you are fundamentally hoping that all of this retail stuff will go,” Healy said.
“We’re at the stage in the industry where we’ve had the first big flurry and now we’re into the part where, ‘Are you going to make any money doing this?’ In other words, now that you’ve had all of this fun in the market, you’ve got to prove that you’re a business, and that I think is going to turn out to be a different kettle of fish for many of these companies,” he says.
Part of Aurora’s troubles stem from its global ambitions, which have seen it pay handsomely for acquisitions over the past three years, along with building out its own operations for international markets. Earlier this month, management provided a corporate update on Aurora’s global initiatives, saying that it’s still in the construction phase at its massive one-million sq ft facility in Denmark along with numerous other operations across Canada currently being built.
But Healy says that a stock that hits its book value should be worth a second look.
“I know nothing of the retail ability of Aurora management but the stock is cheap enough that I don’t think that I’d want to be short this stock anymore. It might go lower but the stock is actually beginning to look attractive. It’s like, ‘Book value? I’ll have some of that,’” Healy says.