1 Oversold Cannabis Stock With Great Upside Potential!

With all the challenges in the pot industry right now, which is the best marijuana stock for both short-term and long-term plays?

| More on:

In trading on October 16, 2019, shares of Aurora Cannabis (TSX:ACB)(NYSE:ACB) entered oversold territory, which would be a strong indication that a short-term investment in this giant of the industry could be a good decision.

In a changing market, go with a global leader

A very wise financial master once said, “Be fearful when others are greedy, and be greedy when others are fearful.” That statement surely applies to the cannabis market in general. However, nothing is ever simple.

There are serious problems with the marijuana market, and it will take some time to deal with those problems. But then again, most of these problems have been factored into ACB stock. Even a small amount of good news could easily spark a rally. In terms of a quick profit on Aurora, the oversold condition is worth looking at with caution.

Something to consider with your caution: Aurora Cannabis’s multiyear string of acquisitions has put the company on track to boast the largest production capacity in the entire cannabis industry. More than any of its rivals, Aurora has bet on a major expansion in the global cannabis market.

The facts suggest that there is little chance that the cannabis industry is going to implode on itself, at least from a long-term perspective. If someone wants to invest in the market, Aurora is a favoured cannabis stock for Americans, as an example of the strength of the company.

The bottom line

The cannabis industry is set to be huge. Most analysts believe that by 2030, it will hit the $98 billion mark. Specifically, Aurora Cannabis, with its peak production capacity, is well positioned to benefit from the growth.

The marijuana market appears to be in a “waiting period” now, and producers are running into multiple challenges. Among these difficulties are sufficiently expanding production to meet demand, cutting production costs to match black market prices, developing brands, and overcoming potency constraints.

Aurora is betting big on international markets. Although all top Canadian pot stocks aim to develop an overseas presence, no company has a more diverse presence than Aurora. Including Canada, Aurora has cultivation, export, research, or partnership presences in 25 countries.

At present, Aurora is Canada’s largest producer, which gives the company certain economies of scale. Management has set an annual target of 625,000 kilograms per year by the calendar year 2020.

When it released fourth-quarter results for the fiscal year ended June 30, 2019, Aurora stock missed revenue expectations. ACB stock’s net loss came at $2.3 million on net revenue of $98.9 million, with an adjusted EBITDA loss of $11.7 million.

An investor could easily look at Aurora’s market cap of around $3.5 billion compared to its historical revenue and think the stock is drastically overpriced. But if the global medical cannabis market grows relatively close to what Aurora expects, the stock’s current price could look like a bargain in retrospect a few years from now.

The facts suggest that a smart investor can hedge the risk on a short-term investment play on Aurora with the comfort offered by ACB’s strategy to maintain a real global position in the cannabis industry, which makes the long-term investment appealing as well.

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 Robert Flynn has no position in any stock 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 »