On Thursday, Aurora Cannabis (NYSE:ACB) hit a 52-week low of 1.80 Canadian dollars before closing at 1.95 Canadian dollars. The company has lost 30.1% of its stock value this year. In comparison, the company lost 58.8% of its stock value last year. The weak second-quarter performance, higher debt levels, depleting cash reserves, and weakness in the cannabis space caused Aurora Cannabis’s stock price to fall. Also, the company has underperformed its peers and the ETFMG Alternative Harvest ETF (NYSE:MJ) this year. Canopy Growth (NYSE:CGC), Cronos Group (NASDAQ:CRON), and Aphria (NYSE:APHA) have fallen by 12.6%, 18.4%, and 29.4% YTD, respectively. Meanwhile, MJ has lost 17.2% of its stock value this year. So, given such a steep fall, has Aurora Cannabis’s stock price bottomed out? First, we’ll look at analysts’ expectations for fiscal 2020 and fiscal 2021.
Analysts’ revenue expectations for Aurora Cannabis
Analysts expect Aurora Cannabis to report revenues of 281.6 million Canadian dollars in fiscal 2020. Meanwhile, they expect the company’s revenue to rise by 50.3% to 423.3 million Canadian dollars in fiscal 2021. Aurora Cannabis started to ship its Cannabis 2.0 products on December 17, 2019, to ten of Canada’s provinces. The company has introduced a variety of CBD (Cannabidiol) and THC (Tetrahydrocannabinol) vape and edible products. Aurora Cannabis produces the products at Aurora Sky in Alberta, Aurora River in Ontario, and Aurora Vie in Quebec.
Earlier this month, the company launched a new value brand called “Daily Special.” I expect these initiatives to drive the company’s revenue in this fiscal year and next fiscal year. With the thriving black market, I hope that the introduction of a value brand will help the company compete against lower-priced illegal products.
Aurora Cannabis isn’t the only prominent cannabis player to introduce a value brand. In November 2019, HEXO launched Original Stash. The company’s management stated that it priced the product close to the black market price to pull customers away from illegal businesses.
Analysts’ EBITDA expectations
In the second quarter of fiscal 2020, Aurora Cannabis reported an EBITDA loss of 80.2 million. However, analysts expect the company’s EBITDA loss to fall to 39.2 million Canadian dollars and 17.5 million Canadian dollars in the third quarter and fourth quarter, respectively. Overall, for fiscal 2020, analysts expect the company to report an EBITDA loss of 166.6 million Canadian dollars. The amount represents an increase in the EBITDA loss from 156.0 million Canadian dollars in fiscal 2019. Meanwhile, analysts expect the company to report a positive EBITDA in the third quarter of fiscal 2021. For fiscal 2021, they expect the company to post a positive EBITDA of 17.7 Canadian dollars.
I expect the introduction of higher-margin Cannabis 2.0 products and the company’s initiatives to lower its SG&A expenses to improve its EBITDA going forward.
Analysts favor a “hold” rating for Aurora Cannabis. Among the 20 analysts that follow the company, 14 recommend a “hold,” one recommends a “buy,” and five recommend a “sell.” Overall, analysts have given a 12-month target price of 2.41 Canadian dollars, which implies a return potential of 20.2%. After Aurora Cannabis reported its second-quarter earnings, Cowen downgraded the stock from “outperform” to “market perform.” Meanwhile, Cantor Fitzgerald reiterated its “overweight” rating. Read Why Did Cowen Downgrade Aurora Cannabis? to learn more.
My take on Aurora Cannabis
In May 2019, Deloitte expected the cannabis-infused edibles market to reach 1.6 billion Canadian dollars. To capture the edibles market, Aurora Cannabis has already introduced cannabis-infused gummies, chocolates, baked goods, and mints. Despite the growth opportunity, I expect Aurora Cannabis to underperform its peers in the near term. Higher debt levels and a lower cash position could hinder the company’s expansion plans. Also, sector-wide headwinds like pricing pressure, the slower rate of the new store openings in Canada, and thriving black market sales could put pressure on the company’s stock price.