On October 25, Aurora Cannabis (ACB) was trading at 4.99 Canadian dollars, which indicates a fall of 14.3% since the beginning of the month. The company is also trading at a discount of 63.5% from its 52-week high of 13.67 Canadian dollars. ACB stock is trading at a premium of 8.7% from its 52-week low of 4.59 Canadian dollars.
The weakness in the cannabis sector and analystsâ€™ target price cut appear to have lowered the companyâ€™s stock price. Recent vaping-related deaths, the expectation of slow revenue growth in the second half of 2019, and the thriving black market have weighed on the sectorâ€™s sluggish performance.
So far in October, Aurora has underperformed the broader equity market and its peers. During the period, its peers Canopy Growth (CGC) (WEED), Aphria (APHA), and Cronos Group (CRON) have returned -6.0%, 5.8%, and -2.3%, respectively. During the month, the S&P 500 Index has risen 1.5%.
The companyâ€™s management blamed the slower opening of new stores, delays in regulatory approvals, and pricing pressures for weak sales. These factors have impacted the entire cannabis industry. As a result, these industry-specific risks appear to have prompted analysts to lower their revenue expectations for Aurora.
On October 25, analysts expected Aurora to report revenue of 522.1 million Canadian dollars in fiscal 2020. This was approximately 59 million Canadian dollars lower than what analysts had projected on September 30. Analystsâ€™ new estimates represent year-over-year revenue growth of 110.6%.
During the same period, analysts also lowered their adjusted EBITDA estimates from a loss of 35.4 million Canadian dollars to a loss of 40.5 million Canadian dollars. The lowering of these revenue estimates could have prompted analysts to lower their EBITDA estimates as well. Compared to the previous year, the companyâ€™s adjusted EBITDA represents an improvement of 74%.
This month, four analysts have lowered their price targets for Aurora Cannabis. Cowen and Company cut its price target from 12 Canadian dollars to 8 Canadian dollars. MKM Partners reduced its price target from 5 Canadian dollars to 3.5 Canadian dollars.
PI Financial lowered its price target on Aurora from 12 Canadian dollars to 7 Canadian dollars, and Jefferies cut its price target from 14 Canadian dollars to 7 Canadian dollars. Since last month, analystsâ€™ consensus price target has fallen from 10.10 Canadian dollars to 8.06 Canadian dollars. The new consensus price target represents a 12-month return potential of 61.6% from 8.06 Canadian dollars.
Of the 16 analysts that follow Aurora Cannabis, 43.8% favored a â€śbuyâ€ť rating. Also, 43.8% recommended a â€śholdâ€ť rating, and 12.5% favored a â€śsellâ€ť rating.
Letâ€™s look at analystsâ€™ recommendations for Auroraâ€™s peers:
The 14.3% decline in Auroraâ€™s stock value has lowered its valuation multiple. On October 25, the company was trading at a forward-EV-to-sales multiple of 10.4x compared to 10.9x on September 30.
The reduction of the analystsâ€™ revenue estimates appears to have offset some of the declines in Auroraâ€™s valuation multiple. The company continues to trade lower than its historical average of 45.9x. Despite the recent fall, Aurora is still trading at a higher forward-EV-to-sales multiple compared to its peersâ€™ median value of 9.0x.
On the same day, peers Canopy Growth, Aphria, and Cronos Group were trading at forward-EV-to-sales multiples of 13.9x, 3.17x, and 30.0x, respectively.
On October 3, Aurora Cannabis provided an update on its growth initiatives and its global operations. In association with CTT Pharmaceutical Holdings, the company introduced CTTâ€™s cannabinoid-infused sublingual wafers in Canadian markets on October 8.
On October 25, the companyâ€™s medical business received some supportÂ from the preliminary findings by the University of Saskatchewan. This research study showed that Auroraâ€™s CanniMed 1:20 could effectively lower or cure seizures completely in young patients.
Along with these factors, the opportunity created by Cannabis 2.0, the second phase of legalization in Canada, could drive Auroraâ€™s stock price. Given the weakness in the cannabis sector, however, investors might want to wait until Aurora posts its first-quarter earnings next month. For analystsâ€™ expectations from Auroraâ€™s first-quarter earnings, please read Aurora Cannabis: What to Expect from Its Q1 Earnings.
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