Aurora Cannabis has already released preliminary FQ4 results so the actual key metrics arent the key focus here. For the June quarter, the company provided these preliminary numbers:
Yesterday, Tilray announced its plans to issue $400 million worth of additional shares. Cowen and Company will assist the company in the stock sale process. Today, the company was trading over 2.0% down at 2:15 PM ET. The growing concerns over vaping could also have lowered Tilrays stock price. The company reported its second-quarter earnings on August 13. In the quarter, it outperformed analysts revenue expectations. However, its net losses were higher than analysts expectations, which led to a fall in its stock price. YTD, the companys stock has fallen 55.8%. For analysts opinions on Tilray, read Tilray: Are Analysts Optimistic about Its Stock?
Cannabis Roundup: ACBs Earnings, CRON, and TLRY
The biggest question is how close the company has come towards reaching adjusted EBITDA positive metrics. Maybe even more important is whether the metric is sustainable with industry production surging.
Aurora Cannabis (ACB) is set to report its fourth-quarter earnings results after the market closes today. Last month, the companys management provided better-than-expected guidance for the fourth quarter. Investor optimism surrounding its fourth-quarter earnings appears to have led to a rise in its stock price. At 2:15 PM ET, Aurora was trading 2.7% higher. For the quarter, analysts expect Auroras revenue to rise sequentially. They also expect the companys EBITDA losses to improve compared to the third quarter. Read Aurora Cannabis: Investors Are Optimistic about Q4 Earnings for more info.
In order to reach adjusted EBITDA positive metrics, Aurora Cannabis needs to achieve gross margins of closer to 70% while Canopy Growth recently guided to goals for 40% gross margin targets.
The market will closely watch whether a premier Canadian cannabis company can hit a huge improvement over the 56% gross margins in FQ3 that led to an EBITDA loss of C$36.6 million. Any aggressive pricing from Canopy Growth could impact the targets of Aurora Cannabis.
At the same time, quarterly operating expenses in the C$70 million range need to be relatively stable over the quarter to achieve the EBITDA breakeven goals. The industry hasnt been great at restraining costs.
While the market will focus big time on EBITDA positive targets, a lot of questions will center around cannabis production, inventory and sales levels. The company had originally targeted having 25,000 kg available for sale in the quarter and the company updated guidance of closer to 30,000 kg. Production 20% above targets has huge ramifications for flooding the market with supply.
The revenue target suggests sales of only slightly above 15,000 kg, up from 9,160 kg in the March quarter. The sales growth is impressive, but the end result is 50% of production still left in inventory.
The enthusiasm on Wall Street for these stocks stems from the wide application for cannabis. Recreational use is already popular but investors’ interests extend far beyond that. Companies from all industries are interested in cannabis including the medical, cosmetics, dermatology, beverage, food, and many more industries. It’s only a matter of time before it finds its way to retail store shelves.
Another key metric is the sales price per gram. In the prior quarter, the sales price dipped to C$6.40 per gram as more sales shifted to recreational cannabis sales away from medical sales. The price dipped about C$0.40 from the prior quarter and the targets suggest another similar dip to C$6.00 per gram.
Naturally, guidance will matter as much as the current financial metrics. Analysts are projecting revenues top C$120 million in the September quarter and up to C$140 million in the December quarter.
Where the company projects EBITDA in the face of ramping costs for Cannabis 2.0 and substantial capacity growth ahead could damage the stock. The market doesnt need ultimate profitability, but a clear path to maintaining positive EBTIDA with the quarterly revenue totals now topping C$100 million is a must.
The pot stocks are still in the process of recovering the losses. Aurora Cannabis stock looks relatively strong among them in this effort. Even with its recent misfortunes, Aurora Cannabis stock is still up 21% year-to-date. So a few bad days on a chart don’t necessarily kill the whole story of a stock.
ACB has a cautiously optimistic Moderate Buy consensus rating from the Street. This breaks down into 3 buy and 4 hold ratings in the last three months. We can also see from TipRanks that the average analyst price target is $9.08 – 43% upside from the current share price.
The key investor takeaway is that Aurora Cannabis is seen as a bellwether in the cannabis sector. How the company guides towards 2H numbers will move the sector for weeks to come.
The stock has a market valuation approaching $7 billion again as the stock has rallied above $6.25 again. The company has the difficult task of convincing investors the stock deserves to trade above 10x FY20 sales estimates of only slightly above $500 million in the face of surging industry inventory levels.
Visit TipRanks Trending Stocks page, and find out what companies Wall Streets top analysts are looking at now.