Down 60% in 3 Months, Is Aurora Cannabis (TSX:ACB) a Buy?

Top Canadian cannabis stocks have received a beating in the second half of 2019. This is doubly concerning when we consider that the S&P/TSX Composite Index has soared to record highs this year. The cannabis sector has seen its share of disappointments since recreational use was legalized in October 2018. Today, I want to look at one of the biggest players in the cannabis game. Should investors jump on this plunge with the long term in mind?

A difficult year

Aurora Cannabis (TSX:ACB)(NYSE:ACB) stock has plunged 59.7% over the past three months as of close on December 11. Shares have dropped 34% just over the past month. Investors were already nervous ahead of its fiscal 2020 first-quarter earnings report. A disappointing earnings release put the cap on what has been a brutal year.

The company announced that it would halt construction of its Aurora Nordic 2 facility in Denmark to save $80 million over the next year. Earlier this year, I’d discussed why Aurora’s cash situation has been a source of concern. It had hoped to achieve profitability in the fiscal year 2019 but was forced to push this back due to disappointing results.

The company has said that the retail rollout in Canada, especially in provinces like Ontario, has not proceeded as smoothly as it would have liked. Fortunately, the Ontario government is reportedly mulling an overhaul of the licensing system, which may open the floodgates for more retail openings in the future.

Net income fell to $10.4 million in Q1 FY 2020 compared to $104.2 million in the prior year. However, gross profit rose 58% to $53.7 million, and it achieved attractive indoor cash cost to produce of $0.85 per gram.

Encouraging signs ahead

This year was a bummer for Aurora, but there are some promising developments for this company and the sector at large as we look ahead to the new year. Aurora and its peers should receive a boost in the coming quarters from the rollout of Cannabis 2.0, which includes the sale of edibles and vape pens. A continued boost in retail outlets is another development, which should boost revenues for the rest of fiscal 2020 and beyond.

Aurora has managed to carve out an international presence in 25 countries. However, it is looking for approval in Germany to continue selling its products. In early December, it received its first approval for a medicinal cannabis product in Ireland.

The addition of Nelson Peltz to the Aurora team as a strategic advisor generated considerable buzz earlier this year. However, investors have yet to see the kind of big fish partnerships that they have been craving. Canopy Growth surged to all-time highs on the back of its Constellation Brands partnership, while also receiving a boatload of cash. We will be looking for similar moves from Aurora in the months ahead.

Is it a buy today?

Shares of Aurora are still trading near a 52-week low as of close on December 11. Its volatility should push away investors who are unwilling to take on major risk going forward. For those who are on the hunt for a speculative buy, Aurora is still worth your attention. It still holds major long-term potential, and the stock last had an RSI of 38. This puts it close to technically oversold territory.

You might be missing out on one of the biggest opportunities in Canadian investing history…

Marijuana was legalized across Canada on October 17th, and a little-known Canadian company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.

Besides making key partnerships with Facebook and Amazon, they’ve just made a game-changing deal with the Ontario government.

This is the company we think you should strongly consider having in your portfolio if you want to position yourself wisely for the coming marijuana boom.

Learn More About This TSX Stock Now

More reading

Fool contributor Ambrose O’Callaghan has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Brands.

Source: The Fool
Down 60% in 3 Months, Is Aurora Cannabis (TSX:ACB) a Buy?
The Fool

The Motley Fool
Contributor at mjcanada.ca
The Motley Fool is dedicated to helping the world invest — better. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, mutual funds, and premium investing services.

In all we do, we take a different approach.

We believe – and have proven over decades – that the individual investor can beat the market.

We believe that anyone can do it, even if they don’t have a lot of time or money to devote to investing.

We believe in a long-term outlook, helping people build wealth over time.

We believe that the person best positioned to take care of your financial future is you.

And we work tirelessly on behalf of our hundreds of thousands of members who are enjoying the opportunities that come with having enough money to do the things that matter to them.

While we are headquartered in Alexandria, Va., The Motley Fool advocates for the individual investor around the globe with offices in the UK, Australia, Canada, Singapore, and Germany.

Related News