U.S. Markets open in 9 hrs 11 mins

Should Investors Buy Aurora Stock Before It Releases Year-End Results?

David Jagielski, The Motley Fool

Aurora Cannabis (NYSE: ACB) is expected to release its year-end results later this week. The company has lost more than 20% of its value in just the past three months, so a strong finish to the fiscal year could help send the stock back up. Let's take a closer look to see whether this cannabis company could be a good buy before its latest earnings report comes out.

Expecting big sales growth

In August, Aurora gave investors an update on its operations in which it stated that based on preliminary and unaudited results, it expected sales for Q4 to come in between 100 million and 107 million Canadian dollars. That's more than five times what the company generated a year ago, back when the adult-use market in Canada hadn't yet opened for business. Those are some impressive sales numbers, and they would be even higher than what rival Canopy Growth (NYSE: CGC) was able to generate in its latest results, when it posted revenues of just CA$90.5 million.

As good as those sales numbers would be for Aurora, the problem is that this isn't new information anymore. When the company released that update on Aug. 6, the stock got a big boost, climbing as high as $7.20 that day. Effectively, those sales figures are now priced into the stock, and they're going to be the benchmark for analysts. Sales landing in the lower end of that range could have a negative impact on the stock. Sales would likely need to finish near the top end of the range for the share price to benefit from the impressive growth.

A hand holding a cannabis leaf up to the sun.

IMAGE SOURCE: GETTY IMAGES.

Even though Aurora may be expecting a good quarter in terms of sales, some of those benefits were likely already realized in August.

The bottom line will likely make the difference

The number that investors will be looking at in Q4 is the company's net income and whether it can follow up competitor Aphria's (NYSE: APHA) impressive results. Unfortunately, that might be a long shot at best for Aurora this quarter. Coming off a loss of CA$158 million in Q3, the company has posted an operating loss of more than CA$74 million in each of the past three quarters. Last quarter, Aurora came in well below estimates, and analysts aren't expecting the company to turn a profit this time around.

Takeaway for investors

Barring a big announcement in the year-end report, the odds are that Aurora won't get a big bump in price even if it does fall within the range of sales that it forecast last month. The saving grace for the stock could be that since it is already near its low for 2019, a large drop in price now might be unlikely. However, given the industry's track record of disappointing investors and analysts, it might be a safer idea to wait until after the company releases its earnings to make a purchase decision. There's simply no compelling reason to buy the stock any earlier.

More From The Motley Fool

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com