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 Saputo right now?

Before you buy stock in Saputo, 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 Saputo 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 $21,345.77!*

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 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

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

Man data analyze
Stock Market

How I’d Allocate $5,000 in U.S. Stocks in Today’s Market

Investing in U.S. stocks and ETFs provide Canadian equity investors with geographic diversification in 2025.

Read more »

grow money, wealth build
Stocks for Beginners

Where I’d Invest $5,000 Right Away for Big Future Growth Potential

Are you wondering how to invest in uncertain times? Here are some tips for investing $5,000 for big growth in…

Read more »

man shops in a drugstore
Investing

2 Canadian Consumer Staple Stocks to Buy in Hold in Your TFSA Through Thick and Thin

Alimentation Couche-Tard (TSX:ATD) and another top defensive stock could fare well in a tariff recession year.

Read more »

ways to boost income
Dividend Stocks

How I’d Invest $5,000 in Canadian Energy Stocks to Reach Toward Millionaire Status

These energy stocks can provide investors in Canada with some of the top growth opportunities and dividends to boot!

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Tuesday, April 29

With election results in and earnings season heating up, several factors could sway TSX stocks in today’s session.

Read more »

senior relaxes in hammock with e-book
Dividend Stocks

How I’d Invest $8,200 in Canadian Monthly Dividend Stocks to Pay for My Retirement Lifestyle

If you have some cash on hand, then these monthly dividend stocks can provide you with cash for life.

Read more »

protect, safe, trust
Investing

Protecting a $5,000 Investment: Why I’m Considering These 3 Defensive Stocks

These three top Canadian value stocks look well-positioned to provide portfolio stability and long-term upside for those navigating market turmoil.

Read more »

Canada national flag waving in wind on clear day
Investing

Where I’d Find Value in Canadian Stocks for My Long-Term Holdings

For investors seeking meaningful value (and long-term upside) from top Canadian stocks, here are two great examples to dive into…

Read more »