Is Charlotte’s Web (TSX:CWEB) a Better Buy Than Aurora Cannabis (TSX:ACB)?

Aurora Cannabis Inc (TSX:ACB)(NYSE:ACB) has long been one of the top two stocks in the cannabis industry, but that might not be the case for much longer.

| More on:

Competition in the cannabis industry is growing, and it’s getting even harder for industry leaders like Aurora Cannabis (TSX:ACB)(NYSE:ACB) to hold their positions. With a market cap of around $10 billion, Aurora is definitely one of the highest-valued stocks in the markets, but whether it will stay that way is the big question.

Let’s take a close look with how the company compares against Charlotte’s Web Holdings (TSX:CWEB), which recently listed on the TSX.

Recent performance

Aurora is coming off a Q3 where its sales reached $65 million, which was still short of expectations. For the trailing 12 months, the company’s revenues are now at around $168 million, which is significant growth considering sales for fiscal 2018 were just $55 million and $18 million the year before that. However, it’s been the bottom line that has been the issue, with Aurora incurring net losses of $211 million over the past four quarters. And with lots of expansion on the way, it could get a lot worse before it gets better.

In its most recent quarter, Charlotte’s Web posted sales of US$22 million, putting its total for the last four periods at US$78 million, or about $104 million after conversion. It’s well off of Aurora’s pace, but a key difference is that Charlotte’s Web has been able to post profits in each of its past four quarters. While they haven’t been particularly large, the company has even been able to post a positive operating income figure as well.

Strategy and overall potential

The two companies are deploying vastly different strategies from one another. Aurora is focusing on the global market with a presence in dozens of countries, with Canada playing a big role in that. While the company is looking to deploy a hemp strategy for the U.S., it’s going to be well behind Charlotte’s Web, a company that’s already dominating that space. With its products already in thousands of locations across the country, Charlotte’s Web’s strategy has focused on hemp, and it’s proven to be a very strong one thus far.

Overall, Charlotte’s Web certainly has the edge here. Not only has it generated strong growth, but it’s more focused than Aurora’s and has been profitable as well.

Valuation

Although Charlotte’s Web has had fewer sales than Aurora, it trades at around 21 times its revenues, which is far less than the multiple of 61 that Aurora’s stock trades at. In terms of valuation, it’s clear that Charlotte’s Web provides investors much better value for their money today.

Bottom line

Aurora may be ahead of Charlotte’s Web based on sales, but that could change a year from now, as hemp has been taking off in the U.S. and could lead to even more growth in that segment. And with a more sustainable business model that’s provided stronger financials, it’s hard not to give Charlotte’s Web the edge, especially with its valuation being much more attractive overall.

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 David Jagielski has no position in any of the stocks mentioned.

More on Cannabis Stocks

Cannabis business and marijuana industry concept as the shadow of a dollar sign on a group of leaves
Cannabis Stocks

Should You Buy Canopy Growth Stock or Green Thumb Stock Today?

Let's dive into two cannabis giants, and which one may be the better pick for long-term investors.

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Could Aurora Cannabis Stock Finally Recover by Year-End?

Down 99% from all-time highs, Aurora Cannabis stock is focused on improving profit margins and expanding sales of its medical…

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Are Pot Stocks About to Surge Again? 

With pot stocks making big moves of late, many investors are now asking whether the cannabis sector is worth investing…

Read more »

Farmer smiles near cannabis crop
Cannabis Stocks

Can Pot Stocks Aurora Cannabis and Canopy Growth Bounce Back in Q4?

Down over 99% from all-time highs, Canadian pot stocks such as Aurora Cannabis and Canopy Growth remain high-risk bets.

Read more »

Worker tags plants at an industrial cannabis operation
Cannabis Stocks

Can Canopy Growth Stock Finally Recover in 2024?

Down 98% from all-time highs, Canopy Growth remains a high-risk investment in 2024 given its weak fundamentals.

Read more »

Tech Stocks

3 No-Brainer Stocks to Buy With $20 Right Now

These three stocks are easy buys for those who don't have all that much to spend, and want long-term growth…

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Slow Burn: Is Aurora Cannabis Finally a Good Buy in June?

One of the benefits of choosing from some of the most beaten-down market segments like cannabis is that even a…

Read more »

Caution, careful
Cannabis Stocks

I Wouldn’t Touch This TSX Stock With a 60-Foot Pole

I wouldn't touch Canopy Growth Corp (TSX:WEED) stock with a 60-foot pole.

Read more »