Key indicators suggest flat outlook by TipRanks
© Reuters. Aurora stock: key indicators suggest stable outlook
Aurora Cannabis (NASDAQ 🙂 is a vertically integrated Canadian producer and supplier of cannabis.
I am neutral on the stock. (See ACB stock charts on TipRanks)
Aurora Cannabis recently released its second quarter results. Revenue was down 19.9% year-over-year, with a 45% drop in consumer sales induced by COVID being the main driver of the drop in profits.
On the bright side, the legal cannabis pioneer managed to cut its EBITDA losses by C $ 13.9 million, an improvement of C $ 17.6 million from last year. Aurora has also added C $ 404.3 million in working capital since last year and now holds cash and short-term investments worth C $ 440.9 million.
Valuation methods suggest that the stock is currently trading at its fair asset value.
An asset-based valuation reveals that Aurora’s fair value is $ 6.36, contradicting its value multiples’ suggestion that the stock is undervalued.
Aurora’s price-to-book ratio is 78.2% above the industry average, while its price-to-sell ratio is 26% above the industry average.
These could, however, be part of a value trap.
Aurora has a cost of capital of 18.5%, with a negative return (240.4%) and a negative return on invested capital (14.2%).
These exceptionally disappointing price figures indicate that the stock is likely to be at a negative value as it stands.
Optimists will most likely look at price-to-pound and price-to-sell ratios, as well as a recovery in consumer sales, but technical data suggests Aurora should trade flat.
The RSI (Relative Strength Index) reads at 49.4 which means the stock is not close to the oversold benchmark (below 30). The volume also remains flat, which means that a sudden change in direction for the share price is out of the question.
American Cannabis Appeal
A new systemic risk for Aurora is the attractiveness of US cannabis stocks. U.S. cannabis companies are still in earlier legal stages than Canadian stocks, but deregulation in individual states is expected to continue, which will support cannabis stock prices in the United States.
US cannabis ETFs are becoming increasingly popular as they aim to tap into the early stage cannabis space. Individual stocks themselves are always difficult to access, as these are mostly penny stocks with a low supply, hence the ETF hype.
The Taking of Wall Street
Wall Street thinks Aurora is a moderate sell, based on six takes and four attributed sales in the past three months. The Aurora average price target of $ 6.35 implies a potential downside of 6.6%.
Aurora should stay flat for now. There are no specific identifiers that indicate a two-way price movement.
Disclosure: At the time of publication, Steve Gray Booyens does not have a position in any of the titles mentioned in this article.
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