If you were an investor in Aurora Cannabis (NYSE:ACB), you were probably looking forward to the Canadian cannabis giant’s Q4 earnings report. Aurora issued guidance in August that looked very promising and on Sept. 11, ACB stock closed at $6.49 in anticipation.
However, when Aurora actually announced its Q4 earnings that evening, the company missed its own revenue guidance from the month before and came in well below what analysts had been expecting.
Aurora stock dropped over 9% the next day. It’s been downhill since, a trend that continued when ACB closed at $4.62 on Friday, losing another 2.43% on the day.
Aurora stock is in territory it hasn’t seen for a year. You have to go back to August 2018, before recreational marijuana use was legalized in Canada, to find ACB trading lower. It hit $4.60 that month.
At this point, ACB stock is underwater for 2019, down nearly 7%. Is it a buying opportunity? After all, it did hit $11.68 less than a year ago. Or is the current slump likely to continue?
ACB Stock’s Q4 Earnings Hangover
There were some positives in the Q4 report, including a big 52% increase in net revenue compared to the previous quarter. However, ACB released guidance in August where it told investors it was expecting net revenue of between CAD $100 million and CAD $107 million.
Analysts were even more optimistic, looking for revenue in the $108.3 range. When Aurora announced net revenue of CAD $98.9 million, missing not only analyst expectations but even the low end of its own guidance from just a month before — the results were predictable.
ACB stock was hammered, losing over 9% of its value. Since then, it’s been suffering a post-earnings hangover, continuing to take loses.
ACB and the Competition
ACB stock has performed poorly as in investment so far in 2019. It closed 2018 at $4.96, which means it has lost 6.9% of its value year-to-date. In fact, after peaking at just under $10 in March, the trend since then has been pretty much all downhill.
It’s down a whopping 54% since those March highs. The brief spike in the weeks after the company released that promising Q4 guidance was one of the few bright sides for Aurora stock since the spring.
So how does ACB compare to the performance of other cannabis stocks?
Canopy Growth (NYSE:CGC) is the biggest of the bunch, and it’s down 11% so far in 2019. Cronos Group (NASDAQ:CRON) is down 12%. Tilray (NASDAQ:TLRY) has shed 63% of its value this year. Beleaguered CannTrust Holdings (NYSE:CTST) is down 75% in 2019.
Hexo (NYSE:HEXO) is one of the few cannabis stocks that is defying the downhill trend for 2019, with 22% growth. But even HEXO has been feeling the effects of a recreational cannabis market that stubbornly refuses to take off, and is currently trading for about half of what it did in April.
In other words, cannabis stocks, in general, are proving to be best suited to long term investors. Most of the companies — including Aurora — saw their stock price rise dramatically when Canada announced it was legalizing recreational pot use starting last October.
Most of them also have seen their market cap rapidly deflate as reality has set in. There have been production ramp-up and distribution challenges, consumer demand was much more tepid than expected, and most of these companies have taken on debt to expand their production capacity.
The Bottom Line on ACB Stock
The future looks bright for Aurora Cannabis, but expectations have been tempered by the reality of the recreational cannabis market. It’s going to take time to grow.
The Wall Street Journal’s analysts are largely split between buying and holding ACB stock and their average 12-month price target of $7.65 reflects some optimism that Aurora is due for a recovery. That’s a significant upside from the current price, but few analysts see a return to the heady days of $10 any time soon.
The question of whether to buy now or waiting to see if Aurora Cannabis stock falls further is one of risk tolerance. Buy now, and the odds are good you’ll see a decent return on your investment over the next 12 months.
Wait, and there’s a chance you could scoop up ACB at an even lower price.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
