Aurora Cannabis’s Target Price and Valuation


Aug. 16 2019, Published 2:12 p.m. ET

As of yesterday, Aurora Cannabis (ACB) stock was trading at 7.63 Canadian dollars. Despite the company providing higher-than-expected guidance for fiscal 2019’s fourth quarter early this year, its stock has fallen 25.6% this month.

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Why Aurora’s stock price fell

This month, prominent cannabis players Canopy Growth (WEED) (CGC), Cronos Group (CRON), Tilray (TLRY), and Aphria (APHA) reported their quarterly earnings. Canopy Growth missed analysts’ revenue expectations. Meanwhile, Cronos and Tilray beat their estimates. However, their net losses were higher than expected. Cannabis companies’ widening net losses appear to have dampened investors’ confidence, dragging cannabis stocks down.

On August 9, Health Canada notified CannTrust Holdings (TRST) that its manufacturing facility in Vaughan, Ontario, didn’t comply with certain regulations. Recession fears after the yield curve inverted also contributed to Aurora’s stock decline. This month, peers Canopy, Cronos, Tilray, and Aphria have fallen 31.1%, 23.2%, 53.2%, and 14.5%, respectively.

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Valuation multiples

The fall in Aurora’s stock price has also lowered its valuation. As of yesterday, Aurora’s forward EV-to-sales multiple had fallen to 7.63x from 10.26x at the beginning of this month. Despite its valuation falling, Aurora stock continues to trade at a premium to 12 peers’ median valuation. Yesterday, Canopy, Cronos, Tilray, and Aphria had forward EV-to-sales multiples of 8.51x, 15.51x, 10.0x, and 2.0x, respectively.

Analysts’ recommendations

On August 13, Piper Jaffray initiated coverage of Aurora Cannabis with a “neutral” rating. The company’s rich valuation multiple and lack of penetration in US, Canadian, and European markets were behind Piper Jaffray’s rating. The investment company’s 12-month price target of $7 implies a 23.5% upside.

Of the 15 analysts following Aurora, most (60%) recommend “buy,” and 40% recommend “hold.” Their average 12-month price target of 13.04 Canadian dollars implies a 70.9% upside. As shown in the above graph, analysts’ price target has been declining since May. To learn more about the market, you may want to read Tilray: Target Price and Valuation Multiple.


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