I am bearish on Aurora Cannabis (NASDAQ: ACB) as its mediocre growth outlook, lack of profitability, and bearish outlook from Wall Street analysts make it look like one of the weaker cannabis stocks.

Aurora Cannabis is a cannabis producer that serves both the medical and consumer marijuana markets. The company is headquartered in Alberta, Canada.

Strengths

Aurora Cannabis is the No. 1 limited partnership company based in Canada in global medical cannabis.

It has more than eight licensed production facilities and operates in 25 countries. It also has a capacity of more than 600,000 kilograms of cannabis production per year, with a large portion of that based in Canada, though its presence is growing in other countries around the world.

In the first quarter of 2022, the company reported net consolidated revenues of $60.1 million, of which a major portion came from Canadian medical, at $25.1 million, followed by recreational and international medical uses at $19.1 and $15.9 million, respectively.

The company’s revenues have declined since the previous year same period, though the International Medical segment showed growth, and the Canadian Adult Recreational segment also showed signs of improvement. Total net loss for the quarter stood at $11.9 million, showing an improvement since the previous year’s $101-million loss.

Though the Canadian Medical segment shows a decline, it remains the No. 1 market share with consistent margins. These can be attributed to the technology investments that create barriers to entry for new players. Consistency is a key driver in retaining patients for this segment.

The company expects organic revenue growth within the next couple of years due to the rapid growth of the International Medical segment in markets like Israel, Germany, France etc., as well as the premiumization strategy to gain traction in the Adult Recreational segment.

The company also has a supply agreement with Israel and has a business unit for the monetization of science and innovation, which are expected to drive results. 

ACB stock is difficult to value as it is not generating any profits. That said, its current price-to-sales ratio is 6x compared to its five-year average of 13.3x, and it is expected to grow revenues from $194.4 million in fiscal 2021 to $238.45 million in fiscal 2023, indicating that the company has decent growth potential ahead of it.

That said, the company is not expected to generate net normalized profit in fiscal 2023, as net income margins will still remain deeply in the red at 33.2%.

Wall Street’s Take

From Wall Street analysts, Aurora Cannabis earns a Moderate Sell analyst consensus based on zero Buy ratings, six Hold ratings, and three Sell ratings in the past three months. The average Aurora Cannabis price target of $6.22 puts the upside potential at 5.6%.

Summary and Conclusions

Aurora Cannabis has a strong competitive position in a high-growth potential industry. That said, the company is far from profitable at the moment and has decent but not stellar growth prospects in the near future.

Furthermore, Wall Street analysts are generally bearish on the stock here.