Cannabis stocks are climbing this year and Aurora Cannabis (NYSE:ACB) is among the leaders of that pack. Shares of ACB stock have nearly doubled year-to-date and are in the midst of a breathtaking March rally of more than 33%.
Returns like those, particularly in the short time frames, might give investors reasonable pause about Aurora Cannabis stock, or any other stock for that matter. Indeed, the risk/reward proposition on ACB stock looks a lot different today than it did at the start or 2019. In terms of upside potential, Aurora Cannabis stock would need to rally another 28% to reclaim its 52-week high.
That is not an impossible climb for ACB stock, but the near- to medium-term issue is finding upside catalysts because plenty of good news is already baked into this marijuana stock. For example, ACB surged earlier this month on news activist investor Nelson Peltz is joining the company as an advisor. That sent ACB stock to a double-digit intraday gain and the shares are up more than 11% since then.
What Analysts Say About ACB Stock
Sell-side analysts are not correct about any stock 100% of the time. Investors that acknowledge that can help mitigate disappointments. That said, some analysts are bullish on ACB stock.
Earlier this month, Cowen’s Vivien Azer — one of the most respected analysts tracking marijuana equities — initiated coverage of Aurora Cannabis with an Outperform rating and a price target that works out to the equivalent of about $10.50 in U.S. dollars.
“While establishing 20% market share has been an early success story in Canadian adult use cannabis, the company is uniquely positioned to drive leadership in both share and profitability,” Azer wrote in a note, according to Barron’s.
The analyst “believes that Aurora will deliver positive earnings before interest, taxes, depreciation and amortization by its fiscal fourth quarter in June, making it one of the first of its peers to reach this milestone,” reports Barron’s.
Some analysts also view valuations on ACB stock as favorable relative to other marijuana names. Consider this about the valuations assigned to some weed equities: Aurora Cannabis stock trades at a forward P/E ratio of 101 and a price-to-book ratio of 3, according to Morningstar data, and that’s considered a value relative to its peer group.
As was noted above, news of the activist investor Peltz getting involved with Aurora Cannabis is priced into the shares, but that does not diminish the importance of this news going forward. One of the biggest drags on Aurora Cannabis stock has been the company’s inability to form partnerships with more mainstream companies as some of its rivals have.
Think Constellation Brands (NYSE:STZ) taking a multi-billion stake in Canopy Growth (NYSE:CGC) or Altria (NYSE:MO) forming a partnership with Cronos Group (NASDAQ:CRON). Last year, it was rumored that Coca-Cola Co. (NYSE:KO), the world’s largest soft drink company, held talks with Aurora to develop cannabidiol-infused beverages, but a deal did not materialize.
Peltz has long tradition of working with management teams — particularly at large consumer staples companies — to streamline operations and bolster efficiencies to enhance profitability.
Aurora Chairman Michael Singer mentioned the beverage, cosmetics, health and wellness and pharmaceutical industries as potential growth areas for his companies and Peltz could help the upstart cannabis company make inroads into those arenas.
The Bottom Line on ACB Stock
Aurora Cannabis definitely shows promise in the marijuana space, and Nelson Peltz only adds to the pot stocks’ legitimacy. For now, however, all of the good news looks priced into ACB stock — even if a valuation of 100x forward earnings is a steal in the cannabis area.
Todd Shriber does not own any of the aforementioned securities.