Aurora’s Walking a Tightrope

It’s do-or-die for the cannabis company at this point

Andrew Willis 25 September, 2020 | 1:28AM

 

 

Andrew Willis: Aurora Cannabis (ACB) is a good example of a company that may be rated four-star but needs to go through a very narrow pathway to reach its fair valuation. The stock walks a fine line between success and failure, and it offers important lessons to cannabis investors.

After Aurora’s painful reverse stock split to artificially prop up a plummeting stock price the company announced it was taking “goodwill” impairment charges – or that it was essentially re-evaluating the worth of its purchases. Not uncommon. But to the tune of nearly two billion dollars? Investors were not pleased.

Sector director Kristoffer Inton says that Aurora is among the riskier across an already risky industry. The company has no big strategic investor, and as such the money is going to need to come from the public market. Not good for existing retail investors.

But we’re keeping our fair value around four hundred percent the going rate… Why? Back to the extreme uncertainty. If the regulatory environment was favourable, customers only bought through legal channels, and costs were kept low, the stock price could be a lot higher.

And steps in the right direction don’t make it unreasonable. The company is reducing some of its operating expenses, it has a new CEO, and hopefully, that massive goodwill charge was good faith and lessons learned…

For Morningstar, I’m Andrew Willis.

 

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Aurora Cannabis Inc4.40 USD-5.98

About Author

Andrew Willis

Andrew Willis  is Content Editor for Morningstar.ca

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