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Aurora Stock Needs This One Thing Before It’s a Strong Buy

ACB stock is one big Coca-Cola or Pepsi investment away from being a big-time winner

By Luke Lango, InvestorPlace Contributor

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Canada’s cannabis leader is currently Aurora Cannabis (NYSE:ACB). This is a well established and rapidly growing cannabis company. They have a global presence, sales leadership, industry-leading gross margins, a great product portfolio and tons of production capacity. But, ACB stock isn’t a buy yet because it doesn’t have the one thing it needs most.

When it comes to pot stocks, there’s one simple rule I like to follow: don’t buy until there’s big money confirmation. What exactly does this mean? Big money is starting to flow into the cannabis arena. Namely, alcoholic beverage giant Constellation Brands (NYSE:STZ) and Marlboro cigarette maker Altria (NYSE:MO) have both made billion dollar investments into Canadian cannabis companies Canopy Growth (NYSE:CGC) and Cronos (NASDAQ:CRON), respectively. Those big investments are big money confirmation that Canopy and Cronos will likely be big players in the global cannabis market. As such, they make both CGC and CRON stock long-term winners.

But, ACB stock isn’t a buy yet because it doesn’t yet have big money confirmation.

Without big money confirmation, there’s simply too much uncertainty here to roll the dice on ACB stock. Aurora might be a leader today. But, they have been competing with cash-strapped Canopy and Cronos thus far. Tomorrow, they are essentially competing with Constellation Brands and Altria. That’s a competition they will have trouble winning.

Thus, unless Aurora gets a big money investment, ACB stock is best avoided.

There Are Things To Like About Aurora

When it comes to Aurora’s underlying fundamentals, there’s a lot to like about this big and rapidly growing cannabis company.

First off, the company is the cannabis sales leader with over $18 million in cannabis sales last year. This sales leadership is due to the fact that Aurora is behind the top 4 best-selling cannabis products in British Columbia and has over 30% market share in Ontario.

Perhaps more importantly, Aurora is growing fast. Revenue growth last quarter was over 200%. When looking out across other pot stocks, Aurora’s 200%-plus revenue growth rate coupled with its already large cannabis revenue base of nearly $20 million is an unparalleled combo of big size and big growth.

Of equal importance, Aurora posted gross margins of 70% last quarter. That is near the top of the entire cannabis industry. Thus, not only do you have a sales and growth leader with Aurora, but you also have a profitability leader. Plus, Aurora has a large and rapidly growing global footprint with a huge production capacity that is supposed to output 500,000 kilograms of cannabis per year by 2020.

In totality, there’s a lot of things to like about ACB stock. If Canopy and Cronos didn’t have multi-billion dollar backings from two global titans, ACB stock would be the leader of the pack in the cannabis world.

A Deal May Be Coming

Although Aurora hasn’t won any deals with any big time beverage or tobacco companies yet, the company doing so over the next several months isn’t out of the question.

According to a prescient Financial Times piece which came out right before Altria’s big investment into Cronos, M&A discussions in the cannabis sector are starting to heat up now that valuations across the board have meaningfully compressed. Importantly, the article mentions that Coca-Cola (NYSE:KO) has held discussions with Aurora about potentially developing a cannabis infused beverage.

It looks like Coca-Cola is waiting for more widespread legalization before they put any money into the space. But, with the passage of the Farm Bill, the all-important U.S. market recently took one huge step closer towards national cannabis legalization.

If further progress is made on this front in 2019, then Aurora’s M&A odds go way up. Not only will Coca-Cola look to make a splash in this space, but so will names like PepsiCo (NYSE:PEP) and Diageo (NYSE:DEO) — the producer of Smirnoff, Captain Morgan, Guinness and other popular alcohol brands.

Thus, the outlook for ACB stock to get a deal in 2019 is favorable.

But, it isn’t a sure thing. And, because it’s not a sure thing, there’s still a lot uncertainty surrounding how this company will compete with a Constellation-backed Canopy and an Altria-backed Cronos. Until that uncertainty gets cleared up with its own big money deal, ACB stock will remain weak.

Bottom Line on ACB Stock

The cannabis space projects to be large, and Aurora has all the makings to be a leader in this space over the next decade. The company just needs one more, very important thing: a big money investment. When ACB stock gets that big investment, this stock will turn into a long-term winner. Until then, it’s best for investors to wait on the sidelines.

As of this writing, Luke Lango was long CGC and CRON. 


Article printed from InvestorPlace Media, https://investorplace.com/2018/12/aurora-stock-needs-this-one-thing-before-its-a-strong-buy/.

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