Aurora Cannabis stock forecast: why shares are far from high

The Aurora Cannabis stock forecast has taken a hit after recreational marijuana sales fell 45%

A scientist holding a cannabis bud between tweezers                                 
Tweezers hold cannabis bud in a laboratory – Photo: Shutterstock
                                

The Aurora Cannabis stock forecast (ACB) is looking uncertain. In the three months to 30 June, total net revenue at the Canadian cannabis company fell 20% compared with the same period a year earlier, down to CAD54.8m ($43.1m). While medicinal sales have risen by 9% over the past 12 months, this has not been enough to offset a 45% decline in the consumer-facing side of the business.

Despite the gloomy results, the ACB stock price actually rose in the immediate aftermath of the results announcement. One day later, on 28 September, shares leapt up from $6.29 to $6.73 in the first two hours of trading, an increase of 7%. 

On a call with analysts, Aurora’s CEO, Miguel Martin, said: “I can safely say we're in the best shape the company has ever been in.” So… is the Aurora Cannabis stock forecast divorced from current financials?

Martin painted a picture of a company tightening its belt and reducing cash burn by making cost savings wherever possible. He also pointed out that medicinal cannabis tends to deliver a much higher margin of 60%, close to double what is achieved through recreational sales.

“Given ongoing challenges in the Canadian adult recreational market, our broad diversification across domestic medical, international medical, and adult recreational segments provides us with underlying strength, stability, and growth opportunities in an evolving industry for global cannabinoids,” he said in a statement accompanying the results.

Debt levels are reducing, and Aurora Cannabis currently has a war chest of CAD1bn. Investment in research and development is also set to be monetised. Overall, Martin expressed confidence that the company will see revenue growth in 2022, something that will factor heavily in ACB stock predictions.

Aurora Cannabis five-year stock price
Credit: Currency.com

ACB stock forecast: untapped markets

During the earnings call, Martin’s argument was that Aurora Cannabis is a market leader in a nascent industry. He pointed to figures that suggest the company currently has a 20% share of Canada’s medicinal marijuana industry, approximately double that of the next biggest competitor. Just 1% of the population currently use the drug for health reasons, however.

“This gap represents Aurora’s opportunity to expand our presence and we have done so through significant investment to help doctors and patients fully appreciate the benefits of medical cannabis. That outreach includes education,” Martin said.

Other elements of Aurora’s strategy include cutting waiting times, enhancing customer service, and rolling out a greater range of products for patients. 

But should the slowdown in consumer demand be a cause for concern? Martin thinks not. Although the year-on-year comparisons for sales in Canada are far from flattering, he told analysts that growth of 8% was achieved on a quarter-to-quarter basis. A newfound focus on higher-quality and higher-potency products appears to be helping matters.

Martin said: “We believe the adult recreation segment is in the process of bottoming out and is now poised to rebound, given new store openings and rising consumer demand.”

Another factor that may help Aurora Cannabis predictions for 2021 lies in how the company is now anticipating that it will be EBITDA (earnings before interest, taxes, depreciation and amortisation) positive on an adjusted basis by the first half of the next fiscal year, even if revenues failed to rise from where they were in the most recent quarter.

ACB’s stock price has lost ground in the year-to-date. It began the year trading at $9.52. That means the price of $6.83 seen at the time of writing is a 28.2% discount on these levels. It is also some way off the 2021 highs of $18.98 that were seen in the middle of February. ACB’s share price has also traded below $100 for more than two years now.

FAQs

At present, the ACB stock forecast is more skewed towards the downside. According to CNN Business, eight analysts currently recommend holding the stock. One believes that Aurora Cannabis has the potential to underperform the rest of the market, while four sell ratings are in place.

When it comes to the Aurora Cannabis stock forecast for 2025, the company’s CFO, Glen Ibbott, pointed to projections from BDS Analytics that suggest medical cannabis sales in Germany, Poland, the UK, France and Israel could hit CAD3.2bn in four years’ time. To put this into context, Aurora’s international medical sales came in at CAD8.6m over the most recent quarter, and even that was an 88% increase on the year before. These sales also delivered a margin of 72%, surpassing the company’s expectations of somewhere in the mid-60s.

“It is clear why international medical is worthy of our focus and investment and why our leadership internationally is an important driver of long-term shareholder value,” Ibbott said.

Analyst forecasts for ACB’s share price over the next 12 months indicate that growth may be limited. However, such predictions can be wrong, and that’s why it is important to do your own research to get a rounded view over whether you believe prices will rise or fall. 

According to CNN Business, the median ACB stock forecast currently stands at $5.97, which would be a 13.2% fall from their current price. The high-end estimate suggests shares could reach $7.91 by the end of September 2022, which would equate to a rise of 15.2%. But on the lower end of the scale, a bearish estimate predicts a price of $4.75, down 30.9%.

Looking ahead to the coming year, the performance of Aurora Cannabis could hinge on the expectations set out by the CEO and CFO in the company’s earnings call. Will adjusted EBITDA turn positive in the first half of 2022? Will recreational sales of cannabis rebound, vindicating the company’s decision to focus on quality? Will Aurora be able to gain greater market share in Canada’s medicinal marijuana market? And will medical sales internationally continue to grow strongly year-on-year, helping to add credence to the predictions of a multibillion-dollar market by 2025?

Currency.com offers Aurora Cannabis shares in tokenised form, allowing you to gain exposure to the share price without owning the underlying stock. This gives you the opportunity to enter into short positions if you believe prices will fall.

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