There’s a saying, once is lucky, twice is good, and three times makes a pattern. So it is that you can say that Aurora Cannabis (NYSE:ACB) got lucky with a third-quarter earnings report that showed higher net income from the prior quarter. Shares of ACB stock are flew 200% since the results were announced before tumbling sharply on the Tuesday session.
When I last wrote about Aurora Cannabis, I said investors would have to wait to see revenue before making a decision to buy ACB stock. On that front, Aurora delivered. The company delivered net revenue, excluding provisions, of $72.6 million, that was a 15% increase from the prior quarter.
Aurora Cannabis delivered higher net revenue in both consumer cannabis (24%) and in medical marijuana (13.5%). The company’s consumer segment got a lift from the launch of the company’s Daily Special value brand. And this was the first full quarter of Canada permitting Cannabis 2.0 products, which includes vapes and edibles.
Aurora Cannabis got more good news on March 18 when Ladenburg Thalmann analyst Glenn Mattson expressed his belief that Aurora may become a solid cash flow generator exclusively from its Canadian operations. Mattson went on to write, “We do think that it (Aurora) will look to expand into the U.S., but not until federal legality is more clear.”
But the Earnings Report Was Not All Positive
The fiscal quarter ended on March 31. This means that for the majority of the earnings session, all cannabis stores were open and running. It was only toward the end of March that the Covid-19 pandemic shut down most brick-and-mortar stores. And while cannabis stores existed as “essential” businesses, it will be difficult for the company to repeat this quarter’s earnings report.
One of the more troubling aspects was that Aurora didn’t report an operating loss in their earnings report. However, in the company’s SEDAR filing (the regulatory body in Canada) Aurora reported a net loss of $98.5 million. That puts the company quite a bit away from profitability.
The company also continues to have an inventory glut. This is a reminder to investors that the fundamental supply/demand imbalance in Canada is not going away anytime soon. And Aurora specifically stated that is was putting more of an emphasis on gaining market share than growth.
And finally, one of the most optimistic parts of the report was that Aurora was slowing its cash burn. However, to put that number in context, you have to remember that the company has sold over $330 million in ACB stock in the last two quarters.
Matt McCall summed up the bearish case for InvestorPlace readers in a recent article:
But it’s worth adding a note of caution to the release. Aurora stock still is down almost 85% over the last year. It’s off some 40% from where it traded when I first tried to steer investors away back in February.
Looking forward, the core problems with Aurora stock persist. Margins are a question mark. The balance sheet is a mess. And I’m far from convinced that Aurora’s strategy is the right one.
The Bottom Line on ACB Stock
ACB stock is the most-traded stock on Robinhood. However, it’s rapidly getting company. The stock is trading at more than 1,000% of its normal volume since the earnings report. The stock broke a record on Friday. According to FactSet, more than 102 million shares were traded.
To put that into perspective, prior to May 15, the average trading volume for the last 90 days was three million shares. However, the company’s stock chart is showing a relative strength index of over 77, which indicates the stock may be overbought.
The Covid-19 pandemic has taught us that cannabis is an essential business. However, it’s still not a legal business in much of the United States. And that’s the reason why Aurora Cannabis still faces an uphill battle to prove to investors that when you use “good” to describe ACB stock, it isn’t followed by the word luck.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
