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  • Earnings
  • cannabis

Will third quarter earnings give the Aurora Cannabis stock the green light?

Aurora Cannabis’ [ACB.TO] share price represents North America’s struggling pot industry. Over the past year the stock has fizzled out, dropping over 22% (through 5 November’s close), a fall closely matched by rival Tilray’s [TLRY.TO] and the Global X Cannabis ETF [POTX].

Headwinds include the ongoing effects of the pandemic and the continuing wait for the US to  legalise cannabis use at a federal level. Then there’s Aurora Cannabis’ ongoing fight to become profitable. 

Upcoming earnings covering the fiscal first quarter 2022 could be a conclusive sign to investors to swerve the stock. However, considering Aurora Cannabis’ share price’s recent falls, the stock could be a bargain should federal legislation in the US finally come through.

9 November

Aurora Cannabis third quarter earnings reported

 

 

What could move Aurora Cannabis' share price in upcoming earnings?

The path to profitability is the big thing to watch out for in Aurora’s upcoming results. During results covering the fourth fiscal quarter 2021, Aurora’s management team highlighted how the company was paying down its eye-watering debt pile and hoped to reach adjusted EBITDA profitability by the first half of the next fiscal year.

In the fourth quarter, Aurora Cannabis generated an adjusted EBITA loss of CAD$13.9m, excluding one-off costs from restructuring. This was a CAD$18m improvement year-on-year and up CAD$2.6m from the previous quarter.

“Aurora has a clear path forward to being adjusted EBITDA positive by the first half of our next fiscal year through actions that we control. And we have significantly strengthened our balance sheet with more cash and working capital and having eliminated secured term debt,” Glen Ibbott, Aurora’s Chief Financial Officer said in the fourth quarter earnings call.

 

When is Aurora Cannabis reporting?

10 November

 

What are analysts expecting?

Aurora is expected to post a loss of CAD$0.26 a share for the quarter, narrowing the CAD$0.92 loss seen in the same period last year. Revenue is expected to come in at CAD$61.44m, down 4.2% from the CAD$64.14m seen last year.

Worryingly, Aurora Cannabis has missed analyst forecasts four quarters in a row. In the previous quarter, the company delivered a loss of CAD$0.68 a share, well wide of a predicted CAD$0.27 loss a share.

 

Bearish outlook on Aurora Cannabis’s share price

Getting a handle on whether Aurora Cannabis’ share price is overvalued is tricky. The company hasn’t turned a profit so has no price to earnings ratio or PEG to go off. One metric available is

Price-to-sales ratio which shows how much investors are willing to pay per dollar of sales for a stock. In Aurora’s case, this comes in at 5.70, which is lower than both Tilray and Canopy Growth, according to data from Yahoo Finance.

Considering analysts expect Aurora Cannabis to be unprofitable for at least the next four quarters, it could take some time for investors to see a meaningful return on their investment.

Yet for some, the downturn in Aurora Cannabis’s share price and other pot stocks could be a bargain, but that depends on not only the company becoming profitable, but changes in legislation.

While 37 states and the District of Columbia have legalised cannabis for medical or recreational use, Federal blessing could turnaround the slump in pot stocks by making it easier to do business in the US.

There appears to be an appetite in the country for such a move. According to a recent Gallup poll, 68% of US adults support the legalisation of marijuana. The market is also growing. US cannabis sales surged 45% in 2020 and are expected to reach $41bn in 2026, according to research from BDSA.

$41billion

Expected total of US cannabis sales in 2026

 

Still, analysts are bearish on Aurora Cannabis’ share price. The stock carries an average CAD$7.25 price target - a 12.2% drop from Friday’s close. The lowest price target is CAD$4, which would see a big 51% fall. The most bullish price target among the analysts is CAD$10, which would see a 21.1% upside. Out of the 15 analysts offering recommendations, 12 rate Aurora Cannabis as a Hold, 1 Underperform and 2 Sell.

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