Stock of the Week: Aurora

Why it may be the cheapest stock in America

Andrew Willis 18 January, 2021 | 4:28AM
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Last week, we looked at what might be the most expensive stock in America. For those bargain hunters this week, we’ll be looking at what might be the cheapest stock – which surprisingly, is one of the most hyped-up stocks out there.

…Well, at least it used to be. Aurora Cannabis tumbled from grace last year with a painful reverse stock split and impairment charges to the tune of nearly two billion dollars. The stock lost half of its value last year – but we’re not quite sure if Aurora deserved to be beaten down that badly.

We’re still extremely uncertain on the stock, and sector director Kristoffer Inton reminds investors that the company lacks economic exposure to the U.S., meaning it can’t take advantage of potential cannabis legalization down south.

This leaves investors evaluating the upside of the Canadian market – which we do forecast will grow around 10% a year until 2030. Aurora has some advantages, like agreements with three major pharmacy chains that strengthens its medical cannabis business, and a focus on lower-cost production.

On the other hand, sustaining any competitive advantages may prove extremely difficult for Aurora. Low-cost production can be eventually be replicated, and a lack of strategic investors in related fields such as alcohol and tobacco hinders the company’s ability to diversify product offerings. And then there’s the question of even surviving long enough for success.

Without a strategic partner to help finance operations if cash gets tight, Aurora may have to come crawling back to the capital markets – which will dilute the equity, and enthusiasm of loyal investors who have stuck with it this long shot.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Aurora Cannabis Inc8.08 CAD7.02Rating
Aurora Cannabis Inc6.39 USD7.31Rating

About Author

Andrew Willis

Andrew Willis  is Content Editor for Morningstar.ca. Follow him on Twitter @AndrewWillisCDN.

 

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