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Could Aurora Cannabis Be A Millionaire Stock?

 


Some investors still believe that Canada Cannabis Aurora(NYSE: ACB) can make a comeback. His cost-cutting efforts under the leadership of new CEO Miguel Martin, who took the reins in September, have not gone unnoticed. The hope is that these measures, coupled with a boom in demand for cannabis induced by a pandemic, could help Aurora achieve profitability quickly. But there are other challenges to overcome, such as managing expenses, raising capital, and launching new products to drive revenue growth.

Aurora had a terrible performance throughout calendar year 2020. But its results in its recent second quarter of fiscal 2021, which ended on December 31, appeared to improve a bit. The company has made investors into millionaires in the past, but does it still have the potential to do so again? Let’s take a look at his progress so far this year and see if it’s possible.

a cannabis leaf resting on a pile of coins

Image source: Getty Images.

Revenue growth was good in the second quarter, but was it enough?

Total second quarter revenue increased 23% year over year to C $ 67.6 million. Total net income from medical cannabis jumped 42% to C $ 39 million. More encouragingly, a 562% year-over-year increase in international medical cannabis sales has proven the demand for Aurora products around the world. Canadian medical revenues also increased, but only 6% to C $ 27 million.

On the recreational side, however, total incomes for cannabis users increased only 25% to C $ 28.5 million. Sales of the still limited selection of derivative products (vapes, edibles and concentrates), launched by Aurora in December 2019, increased by C $ 1.7 million sequentially. If Aurora is to grow its revenue at a high rate, it needs to focus more on derivatives – high margin products that provide a good opportunity for Aurora to achieve profitability. However, launching new products requires capital – something the company lacks.

Aurora’s earnings before interest, taxes, depreciation and amortization (EBITDA) decreased significantly in the second quarter, from C $ 69.8 million to C $ 16.8 million. The credit goes to its “business transformation plan”, which helped reduce its selling, general and administrative (SG&A) expenses by 53% to C $ 44.4 million from the previous year.

Yet a declining EBITDA loss is not a green light for an investment. Aurora has not kept its promise of profitability for some time. Last year, management announced that it expects to achieve positive EBITDA by the fourth quarter of fiscal 2020, which ended in June. But that did not happen. Management again promised that the company would meet that target by Dec.31, but that didn’t happen either.

In fact, in May 2019, management assured that the company would achieve positive EBITDA in the fourth quarter of the fiscal year. 2019.He did not, and his losses continued to increase thereafter. Aurora seems to have developed a disturbing pattern of promise and non-delivery here. All of this makes it difficult to trust this pot company.

Still a long way to go for Aurora

There is still a difficult road to travel for this company to turn into real growth stock. Since US cannabis companies are growing rapidly with the prospect of federal legalization on the horizon, Aurora is unable to thrive among the competition. A strong partnership would have helped – for example, in the way the American beverage giant Constellation marks(NYSE: STZ) makes great financial efforts for his partner, Canopy growth (NASDAQ: CGC).

Without a strong partnership and the necessary financial resources, it will be almost impossible for Aurora to expand into the US market. Aurora said in a press release that by the end of the second quarter, its year-over-year cash usage had declined 74% to $ 70.5 million, and that it now had $ 565 million in cash. I wouldn’t be too excited about this increase. He also has a total debt of C $ 493.3 million.

Additionally, most of the funding Aurora has raised comes from diluting its stock, which is unsuitable for investors. Usually, this means that the business cannot raise capital by other means. The dilution began in May 2020 when Aurora consolidated its shares into a reverse 1-for-12 stock split. Its stock price stayed below $ 1 for long enough to put it in danger of being delisted from the stock market. from New York.

When Aurora went public in July 2017, its outstanding shares were 30.5 million. As of January, it had nearly 165 million shares outstanding. On November 16, Aurora closed a $ 150 million public offering that offered 20 million of its shares at a price of $ 7.50. On January 21, Aurora announced another Bought deal financing of $ 125 million at $ 10.45 per share.

Not a millionaire now, not anytime soon

At this point, it seems impossible for Aurora to become a millionaire maker anytime soon. It could take a few years for the business to start making a profit. Industry optimism drove the stock to sky-high earlier this year, but so far Aurora has only returned 10% overall in 2021, while the benchmark Horizons Marijuana Life Sciences ETF saw a dramatic gain of 57%.

ACB Total Return Level Graph

ACB Total Efficiency Level given by YCharts

If you still have confidence in Aurora and can take the risk, it might not hurt to initiate a small stake. But going big with that pot stock and hoping it turns into millions is probably not a wise move at this point in its history.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.



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