#1 Case of Deceptive Stock Prices and How to Play It Safe!

Aurora Cannabis Inc. (TSX:ACB)(NYSE:ACB) is beating Canopy Growth Corp (TSX:WEED)(NYSE:CGC) on cost, sales, and revenue.

| 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

Canadian investors should always look at financials and how a company is faring compared to peers before buying into a stock. It isn’t enough to look at just the price.

Speculative traders and insiders have a way of driving up the stock’s purchase cost to unreasonable levels. These bubbles are dangerous for long-term investors who are more interested in value and fundamentals.

Canadian investors can find the best example of deceptive stock prices by comparing the earnings results of the two most popular cannabis stocks: Canopy Growth (TSX:WEED)(NYSE:CGC) and Aurora Cannabis (TSX:ACB)(NYSE:ACB).

Canopy Growth sells for over $30 on the Toronto Stock Exchange (TSX), while Aurora sells for less than $7 at writing. The average person could reasonably assume that Canopy Growth sells for a higher price because it’s worth more, owns more assets, and sells more pot. This isn’t the truth, however.

Aurora beat Canopy Growth sales by 7,244 kilograms

Aurora boasts better financials than Canopy Growth. Aurora sells more by the kilogram and brings in more net revenue than Canopy, demonstrating superiority in the marketplace. Not only is Aurora outpacing Canopy Growth in absolute measures, but Aurora is also growing these metrics at a faster pace than Canopy.

In the most recent quarter, Aurora posted a 61% net revenue growth of $94.6 million, while Canopy Growth only brought in $90.5 million. Moreover, Canopy Growth’s revenue actually declined over the last two consecutive quarters by about 4%.

In volume terms, Aurora sold 17,793 kilograms of marijuana – almost 1.7 times the 10,549 kilograms sold by Canopy Growth.

Canopy Growth faces a higher cost of production

Aurora is more efficient at cultivating marijuana in terms of cost to produce at $1.14 per gram. In its last earnings report, Canopy Growth conveniently left out detailed information about production costs. The best way to demonstrate Canopy Growth’s higher production cost is in its gross margin.

The gross margin is the company’s sales revenue minus the cost of goods sold. As Aurora is more efficient at producing marijuana than is Canopy Growth, Aurora’s gross margin is 58% versus Canopy Growth’s 43% gross margin.

The gross margin means that Canopy Growth retains just 43% of the revenue after accounting for the cost of producing the cannabis products.

Aurora is the better value option

There are a few different ways of comparing competing stocks against each other in terms of value. One way is the price-to-book value (P/B). The book value is the difference between assets and liabilities. Thus, the higher the P/B ratio, the less asset value a shareholder is purchasing per dollar of investment.

Canopy Growth’s P/B ratio is higher than that of Aurora at 1.87. This number means that when a shareholder purchases stock, every $1.87 of the share price is equivalent to $1 of Canopy Growth’s assets.

By contrast, Aurora’s P/B ratio of 1.41 indicates that shareholders can purchase $1 of asset value with Aurora for only $1.41.

Foolish takeaway

Aurora Cannabis is the better long-term option. New shareholders will receive much more value for every dollar they invest in Aurora compared to an investment in Canopy Growth.

Marijuana shares will likely sell for more than the $7 it costs to purchase stock in Aurora. We don’t know if cannabis stock will trade for more than the $30 per share it currently costs to buy Canopy Growth.

Should you invest $1,000 in Aurora Cannabis right now?

Before you buy stock in Aurora Cannabis, 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 Aurora Cannabis 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 Debra Ray 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 Stocks for Beginners

Silver coins fall into a piggy bank.
Stocks for Beginners

Here’s How Many Shares of Scotiabank You Should Own to Get $5,000 in Annual Dividends

This dividend stock is a strong investment, but it could take a large investment to create this much income.

Read more »

senior man smiles next to a light-filled window
Dividend Stocks

How I’d Invest My $7,000 TFSA Across These 3 Canadian Stocks for Dividend Income

Investors looking for Canadian stocks for dividend income that can last decades should consider buying these three stocks today.

Read more »

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

Canadian National Railway: How I’d Approach This Blue-Chip With $10,000 in 2025

Despite current macro headwinds, Canadian National Railway remains a rock solid, blue-chip pick for long-term investing.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

How I’d Invest $50,000 in TFSA Cash for 2025

Looking to get started with a TFSA? Here's exactly how to get going with these top stocks.

Read more »

Start line on the highway
Stocks for Beginners

My Top 5 Canadian Stocks for Beginning Investors

A market correction is a good time for new investors to begin their investing journey. These five Canadian stocks can…

Read more »

Asset Management
Stocks for Beginners

Top Canadian Stocks to Buy for Long-Term Gains

Canadian stocks really can offer it all, especially when looking at long-term growth in these few.

Read more »

protect, safe, trust
Dividend Stocks

Where I’d Allocate $20,000 in 2 Safer High-Yield Dividend Stocks for Retirement Needs

Here are two safer, high-yield dividend stocks I'm looking at for my retirement needs.

Read more »

Senior uses a laptop computer
Energy Stocks

Here’s How Investors Can Turn $15,000 in a TFSA Into $235,000

Energy stocks aren't created equal, and this one might be one of the best of the batch.

Read more »