Will Aurora (TSX:ACB) Drop to ZERO or Skyrocket Into the Stratosphere?

Aurora stock has seen an epic fall in 2019. Can it rise from its ashes or will it continue to dwell at the bottom? Let’s find out.

| More on:

Last year was great for the Toronto stock market in general. The S&P/TSX Composite Index recorded its best year in the entire decade. While the overall Canadian Index was riding the highest since 2009, the Cannabis Index witnessed the carnage. After the bullish streak that started in 2016, cannabis stocks went on a downward spiral that has been more than just a regular market correction.

While every pot company has felt the heat of the cannabis bubble burst, Aurora Cannabis (TSX:ACB)(NYSE:ACB) has sustained that shock to the next level. The company started 2019 at $7.09 and ended it at $2.50 with a staggering value drop of 64%, which is 9% more than the collective decline of the Canadian Cannabis Index.

Aurora experienced a net loss of $297 million in the past year, with a comprehensive loss exceeding $350 million. In the wake of that abysmal performance, Aurora asked its chief corporate officer to step down in December. From that point onward, Aurora has started taking corrective measures to revive its business.

Will those measures help the company to take its stock to new heights, or will the price keep plummeting to zero? Let’s try to find out.

Aurora’s woes are less likely to end

Despite making heads roll and having extensive restructuring and layoff plans, Aurora Cannabis is still in a tight spot. The setback that Aurora faced in the European market in the last quarter of 2019 could continue to bite it this year.

In 2019, Germany banned the sales of all the medical marijuana products by Aurora upon finding out that the company was using radiation in some of its facilities without prior approval. This embargo is going to cost millions of dollars of revenue to Aurora. The entire radiation fiasco can also hold up its expansion plans in the rest of the European market.

Aurora stock might also struggle to find its feet in 2020, because the initial excitement and bullishness about cannabis legalization has worn down. Many experts also think that cannabis companies can start a price war out of desperation to get an edge over each other.

Such a rat race can further trim down the cash inflow of Aurora and may cause the stock price to drop even below the 2016 values when it started picking up the steam.

Aurora stock can rise again

Despite the poor performance, Aurora stock is still one of the most traded pot stocks. Its staggeringly high P/E ratio also suggests that investors are still willing to funnel money in it. Many investors are banking on the dwindling regulatory obstacles in the hope that it might boost Aurora’s business and stock.

For instance, Ontario has revised its regulatory policies regarding retail licensing. This means businesses can now open retail cannabis outlets without facing extensive bureaucratic red tape. The expansion of the retail scene is a good omen for Aurora. An excellent retail growth can give a significant upward push to the price of Aurora stock.

With the commencement of the Cannabis 2.0 market, Aurora’s decision to venture into derivative products can also pay dividends. The company has decided to cut back its reliance on the overly saturated traditional cannabis market and wants to focus on derivative products that don’t face fierce competition from the black market either.

Conclusion

2020 can be a decisive year for Aurora Cannabis with regards to its stock performance. The above analysis establishes that it could go either way for Aurora. As an investor, you should exercise caution while investing in Aurora Cannabis, even if you are taking the contrarian approach.

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 Jason Hoang 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 »