Let’s be up-front about this. Alberta-based Aurora Cannabis (NYSE:ACB) isn’t the lowest-risk pot play out there. Indeed, there are folks who aren’t too thrilled about the growth prospects of ACB stock.
For instance, Jefferies analyst Owen Bennett assigned ACB stock an “underperform” rating along with a price target of just $3.58. Bear in mind that the stock was trading at $13 and change on Feb. 8.
So clearly, ACB isn’t the world’s most loved stock. On top of that, prospective investors have to contend with the fact that Aurora Cannabis plans to release its fourth-quarter earnings data on Feb. 11.
As if all of those considerations aren’t enough, we need to weigh the possibility of full U.S. cannabis decriminalization. Are you overwhelmed yet? Don’t worry, as we’ll try to unpack the issues surrounding ACB stock, starting with an analysis of the stock’s technical features.
A Closer Look at ACB Stock
The road to $13 wasn’t easy for ACB stock. As recently as Oct. 28, the stock was trading below $4, believe it or not.
It’s hard to express in words just how volatile ACB stock has been. I suppose the term “roller-coaster ride” would be appropriate here.
Perhaps I should use numbers instead of verbal descriptors. ACB stock’s five-year monthly beta is 3.2, meaning that the stock has historically moved three times as fast as the overall stock market.
Here’s another way of looking at it. For the past 52 weeks, ACB stock’s range was $3.71 to $21.48. The current share price is far from the bottom of that range, but also nowhere near the top.
Therefore, it’s fair to say that there’s no way to predict where ACB will go in the short term. Besides, there’s an upcoming earnings release which would whipsaw ACB stock in either direction.
Given all of those considerations, it’s probably best to limit your position in ACB stock to a small one, if you choose to invest in it at all.
If there’s any driver that could really juice ACB stock this year, it’s not something company-specific but rather the prospect of U.S. marijuana legalization.
In 2021, the U.S. has President Joe Biden in the White House, and he’s been known to have a lenient stance on cannabis use. Plus, the country has a House of Representatives that’s controlled by Democrats, who are sometimes known to favor marijuana legalization.
The Senate is a bit more complicated as the split among Democrats and Republicans is around 50-50. Getting a cannabis legalization bill through the Senate won’t just be a slam-dunk.
Nevertheless, there is hope on the horizon. Very recently, Senate Majority Leader Charles Schumer and Sens. Cory Booker and Ron Wyden affirmed their commitment to make cannabis reform a priority in 2021.
Setting a Low Bar
Even Bennett, the dour Jeffries analyst, seems to acknowledge that decriminalization could be imminent. “US political developments … mean the US market could open up sooner rather than later,” Bennett admitted.
Perhaps the prospect of federal-level weed legalization will bolster the ACB stock price. Yet, some investors might be worries about the upcoming earnings event.
The good news here is that Wall Street’s expectations are quite low. In fact, the analyst consensus is that Aurora Cannabis will post a loss of 19 cents per share for its second fiscal quarter.
I suppose that Wall Street’s pessimism might be somewhat justifiable. After all, for Aurora Cannabis’ previously reported fiscal quarter, the company reported an earnings miss of 166.7%.
That being said, a contrarian perspective ought to favor ACB stock pre-earnings as low expectations could potentially set the company up for a positive surprise.
The Bottom Line
As long as the outcome isn’t as bad as expected, Aurora Cannabis’ upcoming earnings results might be good enough to propel the ACB stock price higher.
And with possible national cannabis legalization in focus, the growth prospects for ACB stock aren’t looking too bad at all.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.