Why Aurora Cannabis Has a Bearish Stock Forecast in 2021

Marijuana stocks have gained a lot of ground since Joe Biden won the U.S. presidential election. So far, 2021 has been positive for Aurora Cannabis (ACB) stock. The stock has gained 88 percent YTD and was trading with sharp gains in the pre-market trading session on Feb. 10. What’s the forecast for ACB stock in 2021?

On Feb. 9, marijuana stocks rallied significantly. Aurora Cannabis, Tilray, Aphria, and Canopy Growth gained 5 percent, 40.7 percent, 25 percent, and 11.9 percent, respectively. The stocks surged after Canopy Growth reported a huge fiscal third-quarter loss. The company anticipates profitability within a year. Also, Tilray entered into an agreement to supply its medical marijuana products in the U.K.

Aurora Cannabis will likely report its earnings for the second quarter of fiscal 2021 on Feb. 12 during the after-hours trading session. The marijuana company has scheduled an earnings conference call on the same day at 5:00 p.m. ET.

In the second quarter, Wall Street analysts expect Aurora Cannabis to post sales of 68.9 million Canadian dollars, which would be 23 percent higher than sales of 56 million Canadian dollars in the second quarter of fiscal 2020. Analysts also expect Aurora Cannabis to post an EPS of -0.25 Canadian dollars in the second quarter compared to -14.16 in the same quarter a year ago.

The legal marijuana landscape is changing dramatically in the U.S. More states are legalizing medical and recreational marijuana. As of November 2020, recreational and medical marijuana is legal to some extent in about 35 states and the District of Columbia.

Marijuana stocks will likely benefit under President Biden. The Biden administration is in favor of decriminalizing marijuana. Currently, most marijuana companies are reporting losses as they invest in growth. However, the fate could change since there’s growing optimism that marijuana will become legal at the federal level in the U.S.

ACB trades at an NTM (next-12-month) EV-to-revenue multiple of almost 11.5x compared to a multiple of around 5x a year ago. In comparison, Tilray and Canopy Growth are trading at an NTM EV-to-revenue multiples of 14.6x and 29.3x, respectively.

According to estimates compiled by CNN, analysts' median target price is $8.61 for Aurora Cannabis, which is 44.8 percent below its current stock price. Among the 17 analysts tracking Aurora Cannabis, 13 recommend a hold and four recommend a sell. The highest target price of $13.31 is 14.6 percent below the stock's current price, while the lowest target price of $3.64 is 76.7 percent below the stock's current price.

ACB stock looks like a buy based on the valuations and growth prospects. The company’s topline could get a boost in the next decade since marijuana use might get legalized at the federal level. The global legal marijuana market will likely reach $73.6 billion by 2027, which represents a growth of 316 percent from 17.7 billion in 2019.