I get so excited — almost giddy, really — when a stock of a great company tanks solely based on one analyst’s negative review. In the case of Aurora Cannabis (NYSE:ACB) stock, the price reduction in the wake of Stifel Nicolaus analyst Andrew Carter’s scathing assessment makes ACB stock practically irresistible.
The shares opened down about 3% on Monday, at $5.46, in response to the downgrade and have been headed lower ever since. Shares closed yesterday at $5.27 after dipping as low at $5.19.
Watching the Aurora Cannabis stock price nearly halve since peaking in March has been torture for long-term shareholders, and some might view Carter’s downgrade as another reason to dump their shares. As you might have figured out by now, I zig when others zag, so I’m looking at the ACB stock rout as a prime buying opportunity — and emblematic of a cannabis market that’s simply undervalued and underappreciated.
Stifel Gives ACB Stock a Major Downgrade
The financial media is buzzing about one person’s opinion of Aurora Cannabis stock, which has had a domino effect as many skittish investors have dumped the already cheap ACB shares. I believe that they’ll regret that decision in due time, though I don’t necessarily expect a full recovery to happen immediately.
As I see it, Carter is overreacting to Aurora’s fiscal fourth-quarter earnings report, and ACB investors are similarly overreacting to Carter’s downgrade of the stock. I’ve seen this happen many times: It’s a cascade effect in which people react to other people’s reactions, and this can last for a while until investors finally come to their senses and think for themselves.
In addition to the downgrade to sell from hold, Carter cut his target for the ACB stock price from CAD $7 ($5.27) to CAD $5, which might not sound like a big reduction but that’s actually a sizable 28.6% cut of his price objective.
Panic Sets In … But Should It?
Adding insult to injury, Carter cited a “less robust in-market performance and difficulty to continue positioning for the larger global opportunity.” Those words, along with the downgrade and price-target reduction, were enough to push the ACB stock price down 8% at one point.
Yes, there was an earnings miss for Aurora Cannabis; that, I won’t deny. Naturally, the negative data has been reported on repeatedly, while the positives have largely been ignored — “If it bleeds, it leads” as they say.
Not that everyone has jumped on the negativity bandwagon: Tamy Chen, an analyst from BMO Capital Markets, actually called Aurora’s much-publicized revenue disappointment “modest,” citing the fact that “Aurora expanded its [recreational marijuana market] share in the quarter.” Indeed, the company’s market share within the recreational-cannabis niche is 21.9% higher than the previous quarter (although, somehow, Stifel omitted that data point).
When to Buy? When There’s Blood in the Streets
Perhaps it’s not sensational enough to make the financial headlines, but the fact remains that among the analyst community, the average price objective for Aurora Cannabis stock is $9.06. That’s considerably higher than the current ACB stock price and proof positive that not every analyst feels the same way that Stifel does.
As someone who prefers to look beyond short-term sentiment and focus on the big picture, I view Aurora Cannabis as a solid investment in the future of legalized cannabis. Even with its earnings miss, Aurora remains the second-biggest cannabis company in Canada — and with 625,000 kilograms of cannabis product expected on an annual basis by early 2020, I still put Aurora on my short list of licensed producers that can meet the demands of a rapidly growing market.
Takeaway on Aurora Cannabis Stock
If you’re going to allow one analyst’s commentary to sway your decision to buy or sell Aurora Cannabis stock, I would recommend that you reconsider your decision. After all, there’s more to investing than following one person’s opinion – and there’s more to ACB stock than the results of one earnings report.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.