Aurora Cannabis (NYSE:ACB) remains stuck in a downtrend, hitting new 52-week lows again this week. That’s despite Aurora stock recently undergoing a 12 for 1 reverse stock split.
The move was engineered to boost the stock price of ACB in an effort to keep it in compliance with the New York Stock Exchange. I don’t have any ill will toward Aurora, but there’s no other way to say it: Healthy companies do not reverse split to stay in compliance with an exchange.
In fact, healthy companies do the opposite. They split their stock prices as they appreciate. As Aurora stock has depreciated over time, it had no other choice.
Separating Winners From Losers
Cannabis stocks have struggled this year. That’s no real surprise though, given what we’ve endured so far in 2020. The industry was struggling before we turned to a new decade, although it appeared the lows were in.
Once a brutal wave of volatility swept through though, cannabis stocks were once again hammered. Some have stayed afloat to a degree, names like Canopy Growth (NYSE:CGC), Aphria (NYSE:APHA) Cronos Group (NASDAQ:CRON) have struggled, but are not necessarily in dire straits.
Others, like Aurora stock and Tilray (NASDAQ:TLRY) haven’t been as fortunate. Access to capital and cash burn are the culprits here, and it’s what separates the industry’s winners from the losers.
Canopy has received billions from Constellation Brands (NYSE:STZ), the latter of which just upped its total stake to 38.6% in the former. Cronos has Altria (NYSE:MO) as a large investor, while Aphria has done a solid job of turning in a positive net income. That said, it did generate a loss for fiscal 2019.
The point is, all of the companies in this group are struggling to various degrees, but others — like Aurora stock — are really on the ropes.
Breaking Down Aurora Stock
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Like alcohol sales, cannabis sales are reportedly doing well amid the novel coronavirus pandemic. Consumers are rushing out to stock up on food, drinks and apparently cannabis. With many out of work on a temporary basis, who’s surprised? But if the increase in sales isn’t helping the bottom line, it doesn’t matter.
Revenue is swelling at Aurora Cannabis, but so too are the losses. Over the last three years, Aurora generated sales of $18 million, $55.2 million, and $247.9 million. In particular, that last figure is impressive and notable.
If it were able to moderate its operating losses during this time, the stock would likely be flying, not sinking. Unfortunately, that’s not the case. Those figures come in at -$9.6 million, -$80.1 million, and -$297 million. Notice how in 2018 and 2019, operating losses began to exceed revenue. That’s not good for margins, the bottom line, or the cash flow statement.
In short, forget the cannabis movement for a minute and simply look at Aurora stock from a business perspective. Do these types of numbers excite you? Does a reverse stock split — because the stock has performed so poorly — that immediately leads to new 52-week lows attract you?
I don’t think so. Aurora’s numbers are worrisome, as is its ability to keep up with its peers. I like the cannabis industry very much, but I don’t like ACB stock.
Bottom Line on ACB Stock
A glance at the daily chart highlights the struggle. Aurora stock has all the makings of a descending triangle. That’s a bearish technical development where downtrend resistance squeezes shares against a static level of support.
In Aurora’s case, support came into play at $8, a level that gave way on Monday. On Tuesday, the stock didn’t even try to reclaim that mark, as it simply continued to plunge lower.
I’m not sure what’s next for Aurora stock, but I won’t be around to find out. Below $8 and investors should continue to avoid this stock.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
