Even though Aurora Cannabis (NYSE:ACB) stock has fallen throughout 2019, the company still has a market capitalization of around $3.5 billion. But as marijuana stocks are undergoing a major correction with no end in sight, why should investors still consider buying or holding ACB stock?
Strong Results From a Competitor
On Oct. 15, Aphria (NYSE:APHA), whose market cap is one-third that of Aurora, reported that its revenue had soared 800% year-over-year to C$126.1 million. Its net income fell 23% to C$16.4 million. Still, Aphria’s fiscal 2020 revenue guidance of C$650 million to C$700 million should make investors more optimistic about marijuana stocks.
In Aurora’s Q4 results, unveiled in September the company reported that its revenue had quadrupled YoY to $C74.98 million. Aurora enjoys leading market share and brand awareness in the Canadian consumer market. Its production increased, and Aurora expects the expansion of its retail infrastructure to enable its revenue growth to accelerate in 2020.
In addition to launching new brick-and-mortar stores across Canada, ACB will further increase its engagement with consumers.
Aurora grew the number of patients participating in its research studies by 10% to over 84,000 patients. Referrals from its own clinics and the over 60 clinics with whom it partners will strengthen its medical business.
Aurora invested over $100 million in its Aurora Sun greenhouse production project. The initiative is progressing nicely.
The company’s investments in technology and automation are expected to drive its operating costs lower. Plus, its production costs will fall over the long-term. In Q1, its capital spending will still be significant, but it’s expected to fall in subsequent quarters.
With a number of its production facilities nearing completion, Aurora is positioned to attain meaningful market share, not only in Canada. but globally, too.
In the past, various regulatory and systemic constraints limited Aurora’s growth rate and raised its inventory levels.
But as it opens more stores, expect its revenue growth to accelerate. Management predicts that its core business will grow and is confident that ACB stock will benefit from strong demand.
Positive EBITDA Ahead
Aurora is targeting positive EBITDA, now that it has shifted from rapid M&A to disciplined, focused execution.
Investors have been upset about excess spending by cannabis firms. Still, ACB stock can rebound in 2020 as ACB becomes profitable ahead of its peers.
Its retail expansion, especially in the province of Ontario, a big Canadian market, should help it reach positive EBITDA, boosting ACB stock. Plus, as new types of cannabis products like edibles are launched, Aurora has plenty of opportunities to grow both its market share and revenue.
The Bottom Line on Aurora Stock
14 analysts who cover ACB stock have an average price target of $6.60 on Aurora stock. That is well above yesterday’s closing price of $3.58.
No new analyst report has been issued on ACB stock in two weeks. In the near-term, I expect a number of analysts to downgrade Aurora stock and lower their price targets on the name, correctly reflecting the uncertainties facing cannabis producers in Canada. But in the long-term, when Aurora has more stores open, its business will be in good shape. So, expect ACB stock to recover over the long haul.
As of this writing, the author did not hold a position in any of the aforementioned securities.