Be Warned: Aurora Cannabis Inc. (TSX:ACB) Stock Is Still Facing Downward Pressure

Aurora Cannabis Inc. (TSX:ACB) is still facing many headwinds that can continue to put downward pressure on the stock.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It hasn’t been a good month for pot stocks, particularly Aurora Cannabis Inc. (TSX:ACB). Over the past month, the company has lost approximately 27% of its value. This most recent decline is more pronounced than that of its closest peers, Canopy Growth Corp. and Aphria Inc.

Astute investors will notice that this is not a one-month blip. Aurora has been in a downward trend since the start of the year. Year-to-date, its share price has cratered 40%. In comparison, Canopy Growth has bucked the declining industry trend and is in positive territory for the year.

Yesterday, Aurora’s stock fell almost 8% on the day. Is Aurora’s selloff overdone?  Let’s take a look.

Acquisition spree

At the heart of Aurora’s struggles has been its 2018 acquisition spree. In May, the company closed on its $1.1 billion Cannimed acquisition, the largest industry deal at the time. Less than two weeks later, Aurora one-upped itself by making a play for MedReleaf Corp. for $3.2 billion.

Once it integrates MedReleaf, the company will have an industry-leading annual marijuana production capacity of 507,000 kilograms. Good news right? Not so fast.

Unfortunately for Aurora investors, their ownership is being significantly diluted by these acquisitions. In a previous article, I explained how Aurora shareholders can lose out in the MedReleaf deal. Studies have show that in all-stock deals, the acquirer significantly underperforms the company it is purchasing.

Oh, and there is a small detail that has been overlooked in these transactions. There is no lockup period for CanniMed or MedReleaf shareholders. As such, they are free to dispose of their shares on the open market immediately upon closing. Once again, this works against current Aurora investors as there can be significant selling pressure on the stock.

I’d also be remiss if I didn’t mention that Aurora overpaid for these two companies. MedReleaf was acquired at a price to sales multiple of 66.17 based on full-year 2018 sales projections; that’s a significant premium.

Technical indicators

As of today, all but one technical indicator point to a sell. Regardless of which moving average timeframe you select, the sell indicator is flashing red. The only technical indicator that provides investors with some hope is the Relative Strength Index (RSI). The RSI is a momentum indicator.  Traditionally, when a company’s RSI dips below 30, the stock is considered to be in oversold territory. Aurora’s current 14-day RSI is sitting at 28.50, which indicates that it may be due for a bounce.

Insider selling

A recent report captured the insider selling activity of the cannabis industry, comparing the TSX’s top seven companies by market capitalization. The result? Aurora Cannabis insiders have sold $64.4 million worth of shares, which is 2.4 times more than Aphria and 3.8 times more than Canopy Growth insiders. When insiders consistently cash out, it doesn’t instill confidence in the stock.

Short-term outlook

Aurora may be due for a short-term bounce on the account of being oversold, but there are still many factors working against it. Once the MedReleaf transaction closes later this summer, there will be a flood of new shares on the market. Likewise, we may see significant selling pressure from MedReleaf shareholders as they lock in their gains. Insider selling doesn’t help matters, nor does the fact that it is among the highest shorted stocks on the TSX.

Invest with caution, as the pot market is still very much mired in uncertainty.

Should you invest $1,000 in Athabasca Oil Corporation right now?

Before you buy stock in Athabasca Oil Corporation, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Athabasca Oil Corporation wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Mat Litalien is long MedReleaf Corp.   

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Investing

An investor uses a tablet
Stocks for Beginners

The Smartest Canadian Stock to Buy With $250 Right Now

Are you looking for the smartest Canadian stock to buy right now? Consider this gem and avoid market volatility.

Read more »

Dividend Stocks

3 Canadian REIT Stocks to Buy and Hold for the Next Quarter-Century

These three Canadian REITs trade cheaply and are highly reliable, making them some of the best stocks you can buy…

Read more »

Electricity transmission towers with orange glowing wires against night sky
Investing

Fortis Just Might Be the Best Canadian Dividend Stock to Buy in April

Let's dive into a few reasons why Canadian utility giant Fortis (TSX:FTS) still looks like a screaming buy heading into…

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

1 Practically Perfect Canadian Stock Down 24% to Buy Now and Hold for Life!

CNR stock is a top Canadian stock for investors, especially with shares down on the TSX today.

Read more »

a man relaxes with his feet on a pile of books
Investing

Got $7,000? How I’d Spread It Across 5 Blue-Chip Stocks for an Investing Foundation

Spreading $7,000 across these five blue-chip stocks provides a solid foundation for long-term financial success.

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

How I’d Allocate $10,000 to AI Stocks in Today’s Market

Shopify (TSX:SHOP) is one of Canada's most compelling AI stocks.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Retirement

Top Canadian Value Stocks I’d Hold in My TFSA for the Next Decade

These Canadian value stocks have significant growth potential and will enhance your TFSA portfolio’s return in the long run.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

The Best Canadian Stocks to Buy Right Away With $30,000

If you have $30,000 you're willing to invest, these are some of the first Canadian stocks to consider on your…

Read more »