Once one of the darlings of the cannabis industry, Aurora Cannabis (NASDAQ: ACB) has been guilty of burning billions of dollars in investor wealth over the last couple of years. Aurora Cannabis was one of the most volatile stocks of 2020 and continues to swing between extremes thanks to a lack of stability. However, the company has made strides in its promise to make a comeback but is it finally time to buy Aurora Cannabis Stock?
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Is Aurora Cannabis Stock Staging a Comeback?
Aurora Cannabis announced its results for the second quarter of fiscal 2021 ended December 31, 2020. In Q2 the total cannabis net revenue, before provisions, was $70.3 million, a 11% increase over the prior-year period and a sequential gain of 2.5%.
After accounting for return and price provisions, total cannabis net revenue was $67.7 million, a 28% increase over fiscal Q2 of the prior year. The company has also reduced its EBITDA loss by $58 million.
ACB has also decided to significantly reduce production volumes to align with demand. It wants its sales to production ratio in Q3 to be in the 90% range.
The good news is that both product categories for Aurora, medical and recreational, experienced an uptick in Q2 with recreational marijuana sales going up 25% while the figure for medical marijuana was 42%. But, does this mean you should run out and buy shares of Aurora Cannabis stock now?
Aurora’s Mixed Q2 Results
Commenting about Q2 performance, Aurora CFO Glen Ibbott recently said, “We continue to see strong growth in cannabis revenues in both medical and consumer categories. Our cultivation execution continues to drive production costs lower and improve gross margins. Aurora’s diversified product portfolio remains in demand with patients and consumers alike.”
However, this doesn’t seem to be the case. When you take a look at cannabis sales in Canada in the same quarter, the number comes out to $829.5 million. This means Aurora Cannabis is selling around 8.5% of the total cannabis in Canada.
During the same period in 2019, total cannabis sales in Canada were $414.6 million. Cannabis sales in Canada doubled from 2019 to 2020 but Aurora Cannabis’ sales went up only 28% year-on-year. When you consider that Aurora Cannabis used to be Canada’s largest cannabis producer, it becomes clear that Aurora is unable to drive home its size and production advantage.
Aurora had earlier emphasized it would deliver a positive EBITDA by the end of the December quarter but it failed to deliver on its promise.
What Are Analysts Saying about Aurora Cannabis Stock?
Aurora had 15 cultivation facilities in mid-2019 that could produce 650,000 kilos of cannabis a year. The company has since sold off five of them and has also gotten rid of one greenhouse in an attempt to curb cash burn and handle tepid demand. Aurora ended Q2 with $565 million in cash but it needs to do a lot more to stop bleeding money.
Aurora has raised equity multiple times in the past. From an outstanding share count of 1.35 million shares in 2014, the company has 184.2 million shares as of December 2020. The amount of investor wealth that has literally gone up in smoke is unbelievable.
Analysts are not positive about Aurora Cannabis stock. A few weeks ago, MKM Partners Bill Kirk downgraded ACB stock to “sell” from “neutral” in February. He said, “We don’t see a cost-cutting or growth path that gets to near-term positive EBITDA.”
Bottom Line: Is it Finally Time to Buy Aurora Cannabis Stock?
Per Zachs.com, Aurora has a beta of 3.11, which suggests the volatility is too high for the average retail investor. The target for the stock is $13.09 and, for Cannin, it doesn’t look like any potential gain is worth the risk.
The stock continues to ride a roller coaster of volatility. The last two months have seen the stock go from $12.96 on January 25 to $23.96 on February 10 to $11.43 on March 30. Aurora, the company that pioneered cannabis stocks on exchanges, seems to be in shambles right now.
It hasn’t been able to turn over a profit and has been burning money steadily. It seems to be a pure-play for speculators. We suggest that retail investors continue to avoid Aurora Cannabis stock until the company manages to generate some consistency.
Is it Finally Time to Buy Aurora Cannabis Stock?
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