Why Aurora Cannabis (TSX:ACB) Is Defying Gravity Today

Here’s why Aurora Cannabis (TSX:ACB)(NYSE:ACB) stock surged by nearly 7% Tuesday, despite its worse-than-expected Q4 results.

| More on:

What happened?

Aurora Cannabis (TSX:ACB)(NYSE:ACB) stock price popped by nearly 7% to $8.65 per share today, despite the broader market weakness. By comparison, the TSX Composite Index was trading with 1.5% losses for the day due to a sharp selloff across sectors — especially in the tech sector. Interestingly, Aurora Cannabis announced its much worse-than-expected Q4 earnings yesterday.

Let’s find out what could be helping ACB stock defy gravity today, despite its dismal quarterly results.

So what?

Aurora Cannabis is a well-known Canadian cannabis company that primarily focuses on medical cannabis products. It currently has a market cap of about $1.6 billion. In the June quarter, its adjusted total revenue fell by nearly 20% YoY (year over year) to $54.8 million — missing analysts’ expectations of $56.3 million by a narrow margin. The company attributed its weaker revenue to lower consumer cannabis demand amid COVID-19-driven lockdown restrictions during the quarter. On the positive side, continued growth in Aurora’s international medical business boosted its medical segment revenue by about 9% YoY.

During its Q4 earnings conference call, Aurora Cannabis CEO Miguel Martin made positive comments about the EBITDA profitability. He indicated that the company could reach EBITDA profitability by the first half of the next fiscal year, even if its revenues don’t grow from its Q4 2021 levels. His positive comment could be responsible for boosting investors’ confidence and driving ACB stock higher today.

Now what?

Earlier today, analysts at MKM Partners upgraded their rating on Aurora Cannabis stock to “neutral” from “sell” and raised its fair value from $6 per share to $7 per share. This upgrade could be another reason why ACB stock price rallied by nearly 7% Tuesday.

While I don’t doubt Aurora’s EBITDA profitability prospects, its gross contracting gross margin amid declining consumer cannabis demand could be a reason of concern. That’s why I would recommend long-term investors to keep an eye on its demand and financial growth in the coming quarters before buying its stock.

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.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Jitendra Parashar 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 »