Canada-based cannabis companies have by-and-large had a rough past couple of years, but this has been especially the case for Aurora Cannabis (NASDAQ:ACB) stock.
Issues with growth and profitability have weighed on ACB stock in a big way.
Over the past five years, this cannabis stock has declined in price by over 99%. Yet while such a staggeringly-high price decline suggests little downside, with plenty of potential for upside on just a small amount of improvement, I wouldn’t bet on it.
Sure, based on recent news with Aurora, in some ways the situation is improving. However, taking several persistent negatives into account, overall it is more like ACB continues to flounder.
Regarding potential upside, there’s only one possible “game changing” catalyst, and it’s a long-shot as to whether this catalyst plays out anytime soon.
With this, let’s dive in, and see why this remains one of the top F-rated stocks.
Some Good, but Still Bad, Still Ugly Overall
Year-to-date, Aurora Cannabis shares have continued to slide in price. Upon the cannabis producer, wholesaler, and retailer’s release of its latest quarterly results, however, some may think whether the company is turning a new leaf.
That is, during Aurora’s fiscal first quarter (ending June 30, 2023), revenue came in at $55.9 million, slightly ahead of analyst estimates.
Net losses per share narrowed compared to prior year’s quarter, and were less than what the sell-side was expecting. For the quarter, the company also reported positive adjusted EBITDA.
As for outlook, this too was seemingly promising for ACB stock going forward. For instance, Aurora guided for positive operating cash flow starting within a few fiscal quarters.
The company has also been buying back previously-issued convertible debt. These debt purchases help to strengthen the company balance sheet, which is highly-leveraged.
Again though, while there have been some positives from Aurora Cannabis as of late, the situation here, overall, is still bad, and still ugly.
While harsh to say, it is undoubtedly true. There are some caveats with the latest results, not to mention continued roadblocks that will likely prevent a massive swing towards profitability.
Big Improvements Are Not Arriving Anytime Soon
Yes, as the aforementioned results suggest an improving situation, you may still be questioning why I remain pessimistic about ACB stock. Still, while the latest results (at first glance) paint a picture of a turnaround taking shape, keep a few things in mind.
For one, Aurora’s results last quarter were boosted by a high level of revenue from its non-cannabis plant propagation business. A seasonal business, this segment reported strong revenues last quarter.
For the rest of the calendar year, though, reported revenue will be far less. This, in turn, could affect the overall company’s ability to further narrow losses during this quarter and next quarter.
Also, a move out of the red may be just a few quarters away, but reaching big time profitability will likely not arrive until cannabis reform finally happens on the federal level in the U.S. Until this happens, Canada-based cannabis companies like Aurora can’t enter the U.S. market.
According to a Forbes commentator, full national cannabis legalization in the U.S. is likely a decade away. In the meantime, investor impatience, not to mention the impact of shareholder dilution, are likely to pressure shares.
Bottom Line: One of the Worst Stocks Overall
With its cash flow still negative, Aurora is financing its debt purchases via cash that it raised from prior secondary offerings of new stock.
While Aurora has not tapped into this dilutive financing method in over a year, it may decide to do so again in the future. Prior equity-raising materially increased the share count. This was a big factor in this stock’s high double-digit price decline.
There’s also delisting risk with ACB. Yes, chances are the company will conduct a reverse stock split to prevent delisting, yet a reverse split could drive another round of declines, as is common with reverse-split situations.
Between uncertain prospects, dilution risk, and delisting risk, I’m clearly not exaggerating when I say ACB stock is not only one of the top cannabis stocks to sell, but one of the worst stocks overall.
ACB stock earns an F rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.