Aurora Cannabis (NYSE:ACB) somehow got even uglier at the start of 2020. But with earnings on tap this week, is there a light at the end of the tunnel for Aurora stock? Let’s examine what’s driving the price action and technical picture. And then I’ll recommend a stronger risk-adjusted strategy for investors.
Almost any investor with even a passing interest in the stock market knows last year was a painful one for Aurora Cannabis. Shares were down nearly 70% in 2019 — not that Canada’s second-largest cannabis producer was alone in that regard.
Bearish industry conditions backed by overzealous forecasts, oversupply, distribution delays and regulatory red tape took its toll on almost every cannabis producer. From one-time untouchable Tilray (NASDAQ:TLRY) to the industry’s current top dog Canopy Growth (NYSE:CGC), no company was immune to last year’s bear market. And 2020 hasn’t been any easier for Aurora shareholders.
Ominous cash flow and debt warnings from Wall Street’s analyst community which weighed on shares in early January found fresh strength this past Friday. Aurora Cannabis tumbled roughly 15% and back toward its year-to-date low. The drop followed a preemptive strike from the company’s management in front of Thursday’s earnings release.
In a nutshell, Aurora’s brass issued a sales warning, a significant restructuring plan and the departure of its CEO amid “sweeping changes” for the company. The “business transformation plan” included sizable layoffs and a massive write-off tied to the company’s South American and European operations. The moves are expected to help Aurora remain debt compliant in the near term, to focus on its core Canadian recreational and medicinal businesses and improve the company’s longer-term financial prospects.
Aurora Stock’s Monthly Chart
The monthly chart continues to support Wall Street’s bearish sell-side analysts. Following Friday’s news, this group now includes two more brokers reiterating sell recommendations and fresh, below-market price targets on Aurora.
Technically, Aurora Cannabis is fast approaching its 2017 low of $1.40. This level marks the bottom after investors’ first bullish whiff of the cannabis market in 2016. It could prove important. However, I wouldn’t recommend long exposure in front of this week’s earnings report. With some analysts aggressively forecasting an even weaker $1 in shares, conditions could get a lot uglier.
I’d recommend Aurora’s “sweeping changes” need to be accompanied by real improvements prior to shares being offered as an investment for anyone other than the most speculative of risk accounts. And to be certain, that enthusiasm isn’t going to happen overnight. It might not even come in 2020.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.