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Aurora Cannabis Stock Has Disappointed this Year

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Updated

Aurora Cannabis stock (ACB) has definitely not lived up to investors’ expectations in 2019. The stock is down 30.61% to 4.92 Canadian dollars on the TSE (Toronto Stock Exchange) in 2019 year-to-date. ACB is also down 64.00% from its 52-week high price of 13.67 on March 19.

The stock has lost 24.80% on the NYSE this year, and it closed at $3.73 yesterday. Moreover, Aurora Cannabis stock is 63.86% below its 52-week NYSE high of $10.32 as of March 19.

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You can also gauge the extent of investors’ disappointment from the dramatic decline in the company’s consensus target price. Analysts first raised the company’s consensus target price on the TSE from 12.7 Canadian dollars in January to 14.4 in May. Since June, however, analysts have gradually lowered the company’s consensus target price to 8.11 in November 2019. Analysts have also reduced the consensus target price on the NYSE from $8.5 in August to $6.43 in November.

So what’s gone wrong, and what’s yet to come? Let’s see how Aurora Cannabis’s actual financial performance has fared compared to expectations. We’ll also look at some peer cannabis stocks.

Aurora Cannabis’ revenue and gross margin projections are trending downward

Wall Street analysts expect Aurora Cannabis’s first-quarter revenues at 96.06 million Canadian dollars, a year-over-year rise of 223.72%. Wall Street now expects the company’s fiscal 2020 revenues at 522.11 million—a year-over-year rise of 110.58%.

Analysts have gradually reduced their first-quarter revenue estimates for ACB to reflect some big challenges in the cannabis sector. In the first week of November, the company’s consensus revenue estimate for the first quarter was 98 million Canadian dollars, a year-over-year rise of 230%. In October, analysts had estimated the company’s first-quarter revenues at 99.2 million.

Wall Street analysts now expect Aurora Cannabis’ first-quarter gross margins at 53.07%, a sequential decline of 155 basis points. Analysts seem to have revised their gross margin estimates downward from 57.0%. They’re now expecting the company’s fiscal 2020 gross margins at 61.22%.

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Analysts seem to be assuming worse pricing pressures

According to Forbes, changes in Aurora Cannabis’s product mix may be behind the reduced average selling price for ACB stock. In the fourth quarter, the company reported Canadian recreational cannabis sales of 44.9 million Canadian dollars, a sequential rise of 52%. Aurora’s medical cannabis revenues rose sequentially by 10% to 29.7 million Canadian dollars. However, Aurora Cannabis’ wholesale bulk cannabis revenues rose sequentially by 869% to 20.11 million Canadian dollars.

For the fourth quarter, Aurora Cannabis reported gross margins of 60%, 55%, and 61% on the sale of medical, recreational, and wholesale cannabis, respectively. However, the company’s average net selling price per gram for wholesale bulk cannabis was 3.61 Canadian dollars. This number is significantly lower than the average net selling price per gram of medical and recreational cannabis of 8.51 and 5.14, respectively.

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The gradual downward revision in consensus revenue and gross margin estimates may also be a result of ongoing pricing pressures in the industry. Analysts seem concerned about the supply-and-demand imbalance in the Canadian cannabis sector. The rapidly increasing cannabis supply isn’t matching up with the much slower retail rollout in Canada. In the Forbes article we linked to above, Stephen McBride highlights the possibility of Aurora rapidly increasing wholesale sales in the fourth quarter due to low consumer demand.

Aurora Cannabis’s revenue surprise history

Aurora Cannabis has managed to beat the consensus revenue estimates only three times in the last eight quarters. Its performance has been even more dismal in fiscal 2019, when the company beat the consensus in only one quarter.

For the first quarter, Aurora Cannabis reported revenues of 29.67 million Canadian dollars, a year-over-year rise of 259.73%. This total missed the consensus estimate of 39.52 million, though. It was only in the second quarter that revenues rose year-over-year by 363.06% to 54.18 million and beat the consensus of 51.8 million. Then again, in the third quarter, the company’s net revenues grew year-over-year by 304.63% to 65.14 million Canadian dollars. But they fell short of the consensus of 68.5 million.

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Finally, in the fourth quarter, the company’s net revenues grew 416.75% year-over-year to 98.9 million Canadian dollars. This total was shy of the consensus of 108.2 million Canadian dollars. Revenues were also lower than the company’s guidance of 100 million–107 million. Aurora’s fiscal 2019 revenues of 247.94 million fell short of its guidance for 249 million–256 million.

Aurora Cannabis’ earnings surprise history

On the other hand, Aurora Cannabis has beaten the consensus earnings estimates five times in the last eight quarters. The company outperformed the consensus earnings estimate two out of four times in fiscal 2019.

For the first quarter, Aurora Cannabis reported diluted normalized EPS of 0.12, which was higher than the consensus loss per share estimate of 0.07.

For the second quarter, it reported a loss per share of 0.21. This loss missed the consensus loss per share estimate of 0.06.

For the third quarter, the company’s loss per share of 0.17 was much higher than the FactSet consensus loss estimate of 0.05.

Finally, for the fourth quarter, the company reported diluted EPS of 0.02—much higher than the consensus loss per share estimate of 0.05.

Analysts’ revenue projections for peer cannabis companies

Wall Street analysts have reduced their consensus revenue estimate for Canopy Growth (CGC). But they’ve increased estimates for Cronos Group (CRON).

Analysts expect Canopy Growth’s Q2 of fiscal 2020 revenues at 109.46 million Canadian dollars, a year-over-year rise of 369.25%. In October, analysts had projected the company’s Q2 revenues at 114.8 million.

Wall Street also expects Cronos Group’s third-quarter fiscal 2019 revenues at 14.69 million, a year-over-year rise of 290.81%. Previously, analysts had projected the company’s third-quarter revenues at 14.0 million Canadian dollars, a year-over-year rise of 275.6%.

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