Below $1, Is Aurora Stock Finally a Buy?

Aurora stock doesn't have many attractive attributes at this time. Pass.

The cannabis sector looked like it was ready to come roaring back to life to start 2020. But long before the coronavirus began sweeping through the world, Aurora Cannabis (NYSE:ACB) and its peers were feeling the selling pressure. Aurora stock now trades for less than a buck, causing investors to wonder what’s next.

Below $1, Is Aurora Stock Finally a Buy?
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I have not been a fan of Aurora stock for some time. Once support failed in the summer, there was no reason to be long this name. I didn’t like it in August or in December, and wasn’t surprised when it hit new lows in February.

Aurora’s main problem is similar to many of its peers: it doesn’t have strong enough fundamentals to back up its valuation. When the financials aren’t the catalyst, a stock needs strong technicals for the bulls to have a chance. But once support gave way, ACB has done nothing but move lower and lower.

With all that said, I don’t like to stay fixed on a position. Meaning that, if the situation warrants going from bearish to bullish, I will. Does Aurora stock deserve that designation? Let’s take a closer look.

Valuing Aurora Stock

If you recall from February, Aurora gave investors plenty to chew on. Its CEO was stepping down and the company took large impairment charges and write-downs. Aurora also announced preliminary fiscal second-quarter results that were well below Street expectations.

Further, the company said, “We believe that the long-term opportunity for Aurora remains very compelling, despite a slower than anticipated rate of industry growth in the near-term.”

That was before COVID-19 became the world’s focal point. However, it’s not clear what impact the coronavirus is having on the cannabis space. To some degree, it may actually be helping. Alcohol sales have been on the rise amid the panic, and at least one analyst has made the case that cannabis sales have been steady.

While most consumers were okay in mid-March, millions have now been out of work for a few weeks. The longer it takes for them to get back to work, the worse the impact is going to be on the economy. At one point not long ago, New York was a big potential catalyst for cannabis. But with COVID-19 wreaking havoc on the state, it’s clear that marijuana legalization is on the backburner, according to the governor.

In the most recent quarter, Aurora stock had 156 million CAD in cash. Current assets of 629.8 million CAD easily outweighed current liabilities of 213.9 million CAD. However, in that current asset count was 45 million CAD of restricted cash and over 200 million CAD in inventory.

Further, ACB is not free cash flow positive or profitable. Its recent quarter showed a sequential decline in revenue and almost flat year-over-year growth. Guidance for the current quarter put sequential growth at flat to negative. In short, the financials don’t get me very excited.

Trading ACB Stock

A look at the technicals reveals a slightly improved situation, but not by much. As you can see from the one-year daily chart, Aurora stock has been trending lower since support near $7 broke in July.

Purple arrows on the chart highlight this level turning from support to resistance in August. Since then, a series of lower lows and lower highs have followed before shares completely blew out in March.

ACB bottomed at 60 cents before rebounding higher with Canopy Growth (NYSE:CGC), Tilray (NASDAQ:TLRY), Cronos Group (NASDAQ:CRON) and others from the space. For Aurora stock, that rally topped out at $1.13 before shares retreated back below $1.

So, what now?

Shares made an extreme move lower that, with time, may prove to be the low. But at this point in time, we don’t know that with any certainty. From here, bulls need to see Aurora put in a higher low. They also need to see the stock break out of this dreadful downtrend. If it can do both — break the downtrend and begin trending higher — then Aurora stock may have a place as a speculative holding in one’s portfolio.

Unfortunately, we’re not there yet and because the financials aren’t attractive enough on their own, Aurora as a whole is a pass for me. I certainly wouldn’t be short at this point, but I wouldn’t be long either. Instead, use the market’s decline as an opportunity to buy high-quality stocks at a discount.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/04/below-1-dollar-is-aurora-stock-buy/.

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