Aurora Cannabis (NYSE:ACB) stock has plateaued over the last few weeks. Since again surpassing the $10 per share range in March, ACB stock has retreated. Shares of the marijuana stock have traded just above the $9 per share range as the equity awaits a catalyst.
Aurora’s production levels ensure that it will remain a significant player in the cannabis industry. A considerable pullback or attracting a large investor could also make ACB stock a buy. However, I see little near-term upside for ACB without such a meaningful catalyst.
ACB Stock Passes the “Smell Test” in Many Respects
My InvestorPlace colleague Will Ashworth points to the noxious odor emanating from the Aurora facility near the airport in Edmonton, Alberta as a bullish sign. That definitely signals activity, and it serves as a creative metric. However, as a child, my parents drove me through Louisiana frequently. Sadly, the smells coming from petrochemical facilities and paper mills did not necessarily enrich investors, let alone the locals. To fully pass the “smell test,” one has to look deeper.
Admittedly, ACB stock passes this test on many levels. It holds up well when compared to Canopy Growth (NYSE:CGC), Tilray (NASDAQ:TLRY) and Cronos Group (NASDAQ:CRON). Elevated multiples have made it difficult to evaluate marijuana stock based on valuation.
However, of these “big four” in the industry, the 75.1 price-to-sales ratio comes in cheaper than its peers. That also holds true with book value as that ratio stands at just under 2.9.
Aurora Cannabis Leads in Production but Not in Investments
Aurora Cannabis has also positioned itself well within the cannabis industry. Analysts forecast production levels above 700,000 kilos. This is the highest in the industry, coming in higher than the 525,000 kilos forecasted for Canopy Growth. Like our own Luke Lango stated, ACB has not received an investment comparable to the Constellation Brands (NYSE:STZ) position in CGC or Altria’s (NYSE:MO) purchase of shares in Cronos.
Moreover, if it has made any publicly-known moves into the U.S. hemp industry. Under current laws, hemp has become the segue by which Canadian cannabis firms can enter the large, lucrative U.S. market. Either of these factors could change at any time. These factors might explain why ACB stock trades at a discount to its peers.
ACB Stock Needs a Catalyst to Become a Buy
Still, this does not make Aurora Cannabis stock a buy at these levels. Like I stated in late March, the “double top” presents a challenge to ACB stock. ACB has fallen modestly since I made that call. It first established that double top just before cannabis officially became legal on Oct. 17. It fell again after briefly moving above $10 per share in March. In the $9 per share range, I see little upside from owning this name until it breaks through this top.
Aurora Cannabis reports earnings for its third quarter on May 14. I see this point as the near-term test for ACB stock. If a positive report takes ACB sustainably above $10 per share, it could move higher. However, a negative report could make the equity plunge. Remember, it traded below $5 per share as recently as December. It could easily revisit those levels should the sentiment turn negative again.
The Bottom Line on ACB Stock
ACB stock will need a catalyst of some kind to move higher. Aurora Cannabis stock has doubled from its December low. However, this places ACB near levels from which it has historically pulled back. Moreover, despite leading the industry in production, it has not received a large investment from the alcohol or tobacco industries like some of its peers. Nor has it made a public move into the U.S. hemp industry.
Those that want to trade ACB stock should receive some clarity following the quarterly report on May 14. Until ACB breaches the double top or pulls back significantly, traders have few obvious reasons to buy in the near term.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
