Aurora Cannabis (NYSE:ACB) is currently one of the worst-performing Canadian pot stocks. Investors were hoping the stock would rebound in 2020, but that still hasn’t happened.
Aurora stock is currently down 72% from a year earlier, and the stock is already down nearly 10% year-to-date. But according to a Cantor Fitzgerald analyst, Aurora’s recent drop presents a good buying opportunity for interested investors.
Analyst Pablo Zuanic blamed the recent stock drop on “misplaced market chatter.” Zuanic expects the company to rebound during the second half of the year.
But it’s getting harder to explain away the company’s shortcomings and increasingly, investing in Aurora stock looks like a risky move. Listed below are four things to consider before going in on Aurora Cannabis.
Aurora Is Experiencing a Leadership Shakeup
Aurora is going through a leadership transition after its Chief Corporate Officer Cam Battley resigned last month. Battley was one of the company’s more public executives, so his resignation caused the stock to drop. And Aurora didn’t offer a reason for his sudden resignation.
However, Zuanic argues that Battley’s resignation is actually a good thing for Aurora stock. This could be an opportunity to bring on an executive that will push greater financial discipline in the company.
The Company’s Financials Went From Bad to Worse
Aurora Cannabis is not yet profitable, and the company continues to issue new stock and dilute the value of its remaining shares. Plus, the company still has quite a bit of outstanding debt that it will need to deal with. And the stock is currently trading at $1.94 per share.
Another thing weighing on the company’s financial position is that it doesn’t have a major partner. Peer cannabis companies Cronos Group (NASDAQ:CRON) and Canopy Growth (NYSE:CGC) have backing from Altria (NYSE:MO) and Constellation Brands (NYSE:STZ). A major equity partner could help free up some cash for Aurora.
Is a Jump in Revenue Around the Corner?
However, it’s not all bad news for Aurora Cannabis. The company could see a significant jump in revenue this year.
Last year, the company’s sales plummeted largely due to a lack of retail stores in Canada. But Ontario is taking steps to remedy this situation and plans to issue 20 new retail licenses per month. This should go a long way toward improving sales for all Canadian cannabis companies.
Aurora Should Be Able to Capitalize on Cannabis 2.0
And finally, Aurora Cannabis is well-positioned to take advantage of Cannabis 2.0. This second round of legalization in Canada allows cannabis companies to begin selling derivative products like cannabis-infused beverages and edibles.
The company has already launched a line of edibles, including gummies, baked goods and mints. These products represent a significant growth opportunity for Aurora Cannabis.
Overall, there are reasons to be hopeful about Aurora stock, but there are still more potential risks than rewards. The low stock price is tempting, but it’s probably a good idea to sit on the sidelines for a little bit longer.
As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.
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