On October 25, Aurora Cannabis (ACB) was trading at 4.99 Canadian dollars, which indicates a fall of 14.3% since the beginning of the month. The company is also trading at a discount of 63.5% from its 52-week high of 13.67 Canadian dollars. ACB stock is trading at a premium of 8.7% from its 52-week low of 4.59 Canadian dollars.
The weakness in the cannabis sector and analysts ’target price cut appears to have lowered the company’s stock price. Recent vaping-related deaths, the expectation of slow revenue growth in the second half of 2019, and the thriving black market have weighed on the sector’s sluggish performance.
So far in October, Aurora has underperformed the broader equity market and its peers. During the period, its peers Canopy Growth (CGC) (WEED), Aphria (APHA), and Cronos Group (CRON) have returned -6.0%, 5.8%, and -2.3%, respectively. During the month, the S&P 500 Index has risen 1.5%.
Analysts ’estimates for Aurora
On October 10, HEXO (HEXO) provided lower-than-expected preliminary revenue for the fourth quarter of fiscal 2019. The company also withdrew its guidance for fiscal 2020.
The company’s management blamed the slower opening of new stores, delays in regulatory approvals, and pricing pressures for weak sales. These factors have impacted the entire cannabis industry. Aurora as a result, these industry-specific risks appear to have desired analysts.
On October 25, analysts expected Aurora to report revenue of 522.1 million Canadian dollars in fiscal 2020. This was approximately 59 million Canadian dollars lower than what analysts had projected on September 30. Analysts' new figures represent year-over-year revenue growth %.
During the same period, analysts also lowered their adjusted EBITDA estimates of a loss of 35.4 million Canadian dollars to a loss of 40.5 million Canadian dollars. The EBITDA estimates as well. EBITDA represents an improvement of 74%.
This month, four analysts have lowered their price targets for Aurora Cannabis. Cowen and Company cut off its price target from 12 Canadian dollars to 8 Canadian dollars. MKM Partners reduced its price from 5 Canadian dollars to 3.5 Canadian dollars.
PI Financial is a target of 12 Canadian dollars to Aurora, and Jefferies is a target of 14 Canadian dollars to 7 Canadian dollars. Since last month, analysts ’10 billion Canadian dollars to 8.06 Canadian dollars. The new consensus price target represents a 12-month return potential of 61.6% from 8.06 Canadian dollars.
Of the 16 analysts that follow Aurora Cannabis, 43.8% favored a “buy” rating. Also, 43.8% recommended a “hold” rating, and 12.5% favored a “sell” rating.
Let’s look at analysts ’recommendations for Aurora’s peers:
- For Canopy Growth, 50% of the 20 analysts that follow the stock. As of October 25, the company was trading at a discount of 61.3% from its price target of 46.02 Canadian dollars. Canopy Growth: Analysts ’Target Prices and Ratings.
- Analysts are bullish on Aphria, and 75% of the 12 analysts that cover the stock is rated as “buy.” Analysts have a consensus price target of 12.96 Canadian dollars, which implies a return potential of 78%.
- Analysts favor a “hold” rating for Cronos Group. Of the 12 analysts that follow the stock, 58.3% rated it as a “hold.” Analysts have a consensus price target of 8.06 Canadian dollars, which implies a return potential of 61.6%. For more, please read Cronos Group: Analysts ’Target Prices and Ratings.
How does Aurora’s valuation multiple look?
The 14.3% decline in Aurora's stock value has lowered its valuation multiple. On October 25, the company was trading at a forward-EV-to-sales multiple of 10.4x compared to 10.9x on September 30.
The reduction of the analysts ’revenue estimates appear to have offset some of the declines in Aurora's valuation multiple. The company continues to trade lower than its historical average of 45.9x. Despite the recent fall, Aurora is still trading at a higher forward-EV-to-sales compared to its peers ’median value of 9.0x.
On the same day, Peers Canopy Growth, Aphria, and Cronos Group were trading at forward-EV-to-sales multiples of 13.9x, 3.17x, and 30.0x, respectively.
Should you consider buying Aurora?
On October 3, Aurora Cannabis provided an update on its growth initiatives and its global operations. In CTT Pharmaceutical Holdings, the company introduced CTT’s cannabinoid-infused sublingual wafers in Canadian markets on October 8.
On October 25, the company's medical business received some support from the University of Saskatchewan. This research study showed that Aurora's CanniMed 1:20 could effectively lower or cure seizures completely in young patients.
Along with these factors, the opportunity created by Cannabis 2.0, the second phase of legalization in Canada, could drive Aurora's stock price. Given the weakness in the cannabis sector, however, investors may want to wait until Aurora posts its first-quarter earnings next month. Cann expectations from Aurora's first-quarter earnings, please read Cann Aurora Cannabis: What to Expect from Its Q1 Earnings.
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