Aurora Cannabis (NYSE:ACB) stock has not done well in recent months and on Thursday after the market closed, things got even worse. Aurora stock fell 5.6% on the day and plunged further in after-hours trading on news that its CEO, Terry Booth, would step down.
The company also announced a “business transformation plan,” which includes axing almost 20% of its workforce. It will also take an impairment charge of between 190 million CAD to 225 million CAD, and a writedown of between 740 million CAD and 775 million CAD.
Making a bad day even worse, it announced its preliminary second-quarter results. Aurora expects revenue between 62 million CAD and 66 million CAD, below last quarter’s 70.8 million CAD and well below analysts’ average estimate of 78.8 million CAD.
That’s a lot of information to absorb, but it’s no wonder Aurora stock is diving on the news. Unfortunately for ACB and other cannabis companies, the stock’s price action comes as little surprise.
Diving Deeper
Marijuana stocks are quite speculative. In coming years, the sector will have big opportunities, but not every company will survive long enough to benefit from them. That’s why I decided which marijuana stock to invest in based on financials and technicals. In my view, Aurora stock’s outlook wasn’t positive on either front.
Instead, I preferred Aphria (NYSE:APHA) and Canopy Growth (NYSE:CGC). Cronos Group (NYSE:CRON) has some positive attributes, too. In a Dec. 30 column, I contended that Aurora stock had no fight left, and its shares subsequently fell to $1.50. In a Jan. 14 column, I again advised investors to avoid ACB, even though its shares were near their lows at the time.
While the stock did subsequently rebound, it’s now back below $2 again. I can’t stress this enough: Cannabis is already a speculative arena, so investors must fish for the highest-quality marijuana stocks they can find.
Opportunities and Risks
Dr. Andrew Schnackenberg, PhD, professor of management at the Daniels College of Business, was asked what changes in marijuana laws should be on American investors’ radar in 2020.
He responded to InvestorPlace via email by saying, “Perhaps the biggest market for recreational use that has the potential to open up in 2020 is New York (and to a lesser extent, New Jersey). Investors should also strongly consider the headwinds being created for cannabis companies that are spilling over from emerging health risks associated with vaping.”
Another quote, this one from Aurora’s management, also highlights the sector’s potential opportunities and risks: “We believe that the long-term opportunity for Aurora remains very compelling, despite a slower than anticipated rate of industry growth in the near-term.”
The news from Aurora will likely weigh on its peers. That’s why if I will invest in this space at all, it will be in marijuana stocks with the best chance of success down to the road.
Trading Aurora Stock
Aurora stock has been under tremendous pressure and as a result, the stock has numerous downtrend resistance marks. Its most recent such level (depicted by the blue line) began in September and helped squeeze shares down to a low of $1.50. However, in mid-January, ACB was able to climb higher, breaking out over its downtrend resistance and reclaiming the 20-day moving average.
The shares were even able to form a short-term uptrend mark (depicted by the purple line). That said, the 50-day moving average continued to act as resistance, and with Aurora stock tumbling today, the $1.50 low will now be in sight.
If Aurora stock can absorb such bad news and avoid breaking below $1.50 for a meaningful amount of time, then it may indeed be ripe for a rally. I am not bullish on Aurora stock, but I will not ignore the shares’ technicals. And just because the stock is in rough shape does not mean it can’t have rallies.
If $1.50 holds as support, investors will have to start thinking about potential gains back to the 50-day moving average. However, if the shares drop below $1.50,, $1 could be on the table.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long APHA.