A slight earnings whiff is no match for budding trends off and on the price chart in Aurora Cannabis (NYSE:ACB). But bullish investors should wait for a bit more green to appear on the weekly view of ACB stock before buying. Let me explain.
It’s not difficult to grow uneasy when one of the marijuana stocks misses Street forecasts and issues a wider-than-expected loss. But in the case of ACB stock, it also fails to appreciate the big picture — one which looks very promising for Aurora investors.
Bottom line, a near-term a loss of 16 cents versus views calling for red ink of 5 cents looks bad superficially. But, it would be a mistake to discount the cannabis market’s secular growth potential and the positive impact on Aurora’s earnings over time. In fact, it could be a huge mistake to write off ACB stock based simply on earnings, if history is any indicator.
Many of today’s leaders in their respective markets such as Netflix (NASDAQ:NFLX) or Amazon (NASDAQ:AMZN) took massive losses during their early growth phases. That let them position strategically for the long-term. Further, with a good chunk of Aurora’s quarterly loss tied to convertible debt, which we might assume has been issued for the goal of growth and capturing market share, optimistically, the pay-off will be worth it.
In the meantime, there are also other bullish factors already in play for Aurora Cannabis stock.
For one, ACB’s stronger-than-expected third-quarter sales growth during a rather weak operating environment for Canadian cannabis outfits was nothing short of a solid win. As InvestorPlace’s Luke Lango also notes, ACB stock’s relative discount in valuation make Aurora ripe for investment similar to Canopy Growth (NYSE:CGC) or Cronos (NASDAQ:CRON) and bodes well for higher prices.
And if the price chart in ACB stock has any say in those matters, those days of waiting may be numbered.
ACB Stock Weekly Chart
After moving more or less in lockstep with the broader market from last fall’s high through its corrective bottom, shares of ACB stock have negatively diverged. But the relative weakness could work to bullish investors’ advantage in the very near future.
The divergent price action over the past couple months has produced a period of technical consolidation centered on Aurora’s 50% retracement level. The overall constructive behavior is easy enough to appreciate. Also, with the pattern effectively neutralizing some modest, but frothy, optimism earlier in 2019, a reassertion of ACB stock’s uptrend is anticipated.
The suggested strategy to buy Aurora Cannabis is to wait for last week’s engulfing pattern to signal that a low is in place. This means investors should only buy shares above $9.05 as the weekly candlestick’s high is breached.
For money management I’d recommend peeling off some ACB stock position risk at the prior highs near $12.50. I’d also use the May pattern low as an initial stop-loss. The combination allows for nice profit potential in relation to risk, while keeping one’s exposure contained to acceptable levels.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.