Canadian cannabis grower Aurora Cannabis (NYSE:ACB) reports its fiscal first-quarter earnings on Nov. 11, and analysts, on average, expect the company to report a Q1 loss of 3 cents per share. If ACB does report a loss, the trend of cannabis companies losing money would be extended.
Investors who are considering buying Aurora Cannabis stock probably expect its revenue growth to at least match analysts’ average outlook of nearly 227% .
With ACB stock having shed almost two-thirds of its value from its most recent 52-week high and with marijuana equities largely unloved at the moment, any good news from Aurora is likely to be well-received by investors.
But continuing to muddy the near- to medium-term outlook of Aurora Cannabis stock is some analysts’ recent distaste for the stock. These analysts are bearish on ACB stock even though the global marijuana is expected to eventually eclipse $200 billion.
“We continue to tout the $200 billion global opportunity,” said Stifel analyst Andrew Carter in a recent note to clients. “with our positive bias towards companies best positioned to endure the current environment with the unconstrained ability to invest towards this larger global opportunity.”
But in that same note, the Stifel analyst displayed a preference for similarly downtrodden Canopy Growth Corporation (NYSE:CGC) and Cronos (NASDAQ:CRON) over Aurora Cannabis stock.
Bumps, Bruises, and Some Opportunities
There’s no denying that Aurora has taken its lumps over the past year and that, at this moment, it’s easier to be bearish than bullish on Aurora stock. However, there are some reasons to believe that ACB stock can bounce back.
Of course, primary among those reasons is the aforementioned expected growth of the global marijuana market to $200 billion. Aurora Cannabis stock is highly levered to that growth because the company’s geographic breadth and its capabilities and efficiencies are arguably the industry’s best.
Additionally, Aurora’s focus on the medical marijuana market could rejuvenate ACB stock. While the recreational market is undoubtedly intoxicating (no pun intended), more governments are likely to approve marijuana for medical purposes before they give the nod to recreational cannabis. Plus, medicinal users are more loyal buyers and purchase at higher price points than their recreational counterparts.
And there are catalysts looming in Canada, Aurora’s home market, that could prove beneficial to ACB stock.
“Positives: in Canada: recreational sales up 50% quarter-on-quarter, more store openings and the launch of derivatives, could double the recreational market to C$2.4 billion ($1.8 billion) in 2020; in Western Europe, export ramp from new capacity,” said Cantor Fitzgerald analyst Pablo Zuanic in a recent note.
Believe it or not, there’s even a school of thought that concerns about the sluggish pace of growth and lack of profitability are being overstated, particularly when it comes to Aurora Cannabis stock.
“However, we view such concerns as misguided at this point in the industry’s stage of growth,” said Morningstar. “First, the slow rollout of dispensaries in Canada has restricted what otherwise would be more rapid growth. However, more retail sites are still opening.”
The Bottom Line on ACB Stock
It’s easy to understand why many investors don’t view Aurora Cannabis stock as a screaming buy. Stocks don’t earn that status when they drop 44% in three months, as ACB stock has.
Nor is the valuation of Aurora stock inexpensive. Actually, the opposite is true. The shares are pricey. In other words, there are plenty of hurdles for ACB stock to overcome at this point. But there are some arguably underappreciated factors that could make Aurora Cannabis stock a “buy” sooner than later.
“With some of the highest gross margins in the industry, Aurora has the seeds to be profitable in the future,” according to Morningstar. “Overhead expenses will decline as a percent of sales as the industry matures, turning growing sales into growing profits.”
For risk-tolerant investors, a small position in Aurora in advance of consistent profitability could pay off in a big way.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
