Aurora Cannabis stock (NYSE:ACB) holders have had a rough couple of weeks. In early September it seemed like the long-term downtrend may have finally come to a merciful end. In a matter of just a few days the ACB stock price rose by around 15% rallying from levels around $5.50 to $6.45.
Then on Sept. 11, the company reported its earnings and ACB stock has been in a freefall ever since. The price has fallen by over 20% in a week.
Aurora’s fourth quarter earnings statement was kind of unusual. Like earnings statements usually do, the developments that the company believes are positive were highlighted. Here, Aurora said that net revenue was CAD 98.9 million ($74.5 million), a 52% increase from the prior quarter. Cannabis gross margins were 58% and net revenue increased by 61% to CAD 94.6 million in the same period last year.
In addition, the company also highlighted that production volume increased by 86% sequentially and the medical patient base grew by 10%. Another highlight was that the adjusted EBITDA loss of CAD 11.7 million was significantly lower than the CAD 36.6 million loss in Q3 of 2019. These all certainly sound like positive developments.
However, there is something that is very strange about the earnings statement. Something was missing from it and that would be the actual earnings.
To see what they were, you need to read the detailed financial statements. I am not sure of what the company’s logic is by doing this. To me it seems very unusual. I am certainly not accusing it of doing anything wrong, but I think that it gives the appearance that it is trying to hide something. This could be one of the reasons why so many investors are losing confidence in ACB stock.
Stifel Nicolaus is one of the Wall Street research firms that follow Aurora. This particular earnings release prompted the firm to downgrade ACB to sell from hold. It also made a significant reduction of the full-year’s sales forecast. It cut the numbers from CAD 600 million to CAD 485 million.
Stifel also believes that the company is cash negative and that it will essentially need to borrow about CAD 445 million to continue its operations over the next few years. This will be very difficult to d0 because of the company’s losses and the negative sentiment that the industry is now experiencing. This is very bearish commentary.
The other firms that follow Aurora are not as negative on ACB stock. At least not yet. Some 15 other firms follow the stock. Of these, eight have buy ratings on it, one has it as an overweight while the other six have it rated as a hold. Time will tell who is right but I would tend to agree with Stifel. This company is facing serious issues and there is a good chance that is doesn’t survive.
What’s Next for Aurora Cannabis stock?
If Aurora stock continues to fall, there is a decent chance that it finds some support around the $5 level. This is because it is where the lows were in December and January. It is also an important level psychologically. Some people like to by stocks at nice round levels.
At the time of this writing Mark Putrino did not hold any positions in any of the aforementioned securities.