Is Aurora Cannabis Inc’s (TSX:ACB) Stock Price Justifiable?

Aurora Cannabis Inc (TSX:ACB)(NYSE:ACB) grew at an astonishing rate in 2018, but does it justify the price?

| 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

Aurora Cannabis Inc (TSX:ACB)(NYSE:ACB) was one of the biggest losers in the marijuana mania of 2018. Starting off the year at $11.82, it ended it at just over half that price. This precipitous decline was sharper than that of Canopy Growth Corp, which despite a steep slide did not fall below its January 2nd closing price by year’s end.

Aurora ended 2018 down 54% from its 12-month high. A slide that steep is remarkable in itself, but is made all the more remarkable by the fact that Aurora actually grew its revenue at an astonishing pace over the year. So is Aurora a dirt-cheap bargain at its current price, or does it remain overvalued?

First, let’s take a look at the aforementioned growth, including what it means and what it doesn’t.

Massive revenue growth

Aurora made headlines by posting 260% revenue growth in Q1 fiscal 2019 (note that this quarter occurred within the 2018 calendar year). Prior to that, in Q4, the company had posted 223% revenue growth. These figures mean that Aurora was growing revenue at a frightening pace in the second half of 2018. Earnings, too, seemed to be going up: in Q4, they came in at $78 million compared to a $20 million loss in the same quarter a year before.

However, things aren’t quite as rosy as they seem: the vast majority of the company’s earnings growth in Q4 came from unrealized non-cash gains on securities. In other words, these were not actually “bankable” cashflow-positive earnings. And worse, in the quarter, the company’s operations lost $39 million–which later grew to a $110 million operating loss in Q1 fiscal 2019!

Long story short, despite all the frothy revenue growth, Aurora’s operations are still losing money–and the losses are mounting. But what if the stock’s price makes up for it?

Valuation

With EPS of $0.29 in the trailing 12-month period, Aurora trades at 23 times earnings. This certainly seems cheap for a company that’s growing revenue at 260%, but remember, the devil is in the details: Aurora’s earnings aren’t mainly from cash flow, but from non-cash gains securities. This means that the company can’t “bank” the earnings it has reported–nor should its shareholders expect to.

When we look the price-to-sales ratio, it appears that Aurora is actually rather expensive. The company trades at 88 times sales, a high figure by any standard, although the price-to-book ratio of 1.49 is fairly low. If I were sitting in Warren Buffett’s office right now, I’d put the question of Aurora’s valuation in the famous “too hard” box.

Bottom line

Aurora is an interesting case study in the fortunes and follies of the cannabis industry. The company just recently achieved positive earnings, but continues to lose money on operations. This makes its net income and diluted EPS figures hard to evaluate. If we take these numbers at face value, then Aurora is cheap according to the price/earnings and price-to-book ratios, but it is unquestionably expensive by the price-to-sales ratio. Personally, I’d wait for this company’s operations to become profitable before I would confidently call it a good value.

Should you invest $1,000 in Bank of Montreal right now?

Before you buy stock in Bank of Montreal, 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 Bank of Montreal 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 AndrewButton has no position in any of the stocks mentioned.

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

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 »

rail train
Dividend Stocks

What to Know About Canadian Pacific Railway Stock for 2025

CP stock has now gone through a major merger, so what do investors have to look forward to?

Read more »

ways to boost income
Dividend Stocks

Top Canadian Value Stocks I’d Buy for Dividend Growth and Appreciation

If you are looking for income and capital appreciation, here are three Canadian value stocks for a great total return…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Canadian Stock to Buy With $2,000 Right Now

The company’s powerful combination of growth, income, and value, positions it well to deliver solid returns, making it a smart…

Read more »