Despite Aurora Cannabis’s (ACB) disappointing performance over the past few quarters, investors are once again gearing up for the company to report their earnings.
Last quarter we saw CCO Cam Battley depart mid-quarter and ACB prepped the market that they would be writing down around $1 billion worth of goodwill. This news sent the stock downward, in addition to missing analyst estimates.
We have seen plenty of insiders selling this past quarter, from Terry Booth (former ACB CEO) and from Micheal Singer (current interim ACB CEO), as the stock continued to drop.
Then they announced a reverse stock split, which is scheduled to take place one day before the company reports earnings. The share price will jump 12x and could result in a dangerous psychological wave of selling, with investors and short-sellers seeing a renewed opportunity to pile back in.
Despite all of the negativity and underperformance, ACB remains one of the most traded stocks on the broker Robinhood and Wealthsimple Trade in Canada and the USA.
The last time ACB reported earnings, on February 13th, 2020, they reported a loss of $0.18 per share, which missed the consensus estimate of $0.06. ACB also recorded revenues of $42.45 million for the quarter, compared to the consensus estimate of $47.24 million.
ACB has not confirmed earnings yet but the company’s estimated earnings date is Tuesday, May 12th, 2020, which is based on the prior year’s report dates. The company is also notorious for being late or changing the earnings date at the last minute.
Right now the consensus EPS forecast for ACB sits at a loss of $0.04 cents per share. Of the 15 analysts that cover the stock, only 1 rates it a Buy, 11 rate the company a hold, and 3 rate ACB a sell. The average price target on ACB sits at $1.71 which indicates the stock could have over 130% upside if things were to turn around.
So what should investors be looking for in the next earnings report?
We want to see that ACB has brought down their operating expenses. ACB mentioned previously that they were working towards a goal of $40 million per quarter in operating expenses. If the company can achieve this goal, then profitability is not out of reach, even if revenues are stagnant throughout the COVID-19 situation. The closer the company gets to profitability, the faster investors could have the potential to regain confidence.
We saw what happened to shares of Aphria in their first profitable quarter so if ACB can achieve this milestone we could see some explosive gains.
ACB currently only has an interim CEO, not a permanent one, and the market does not like the uncertainty. Therefore, we hope that this addresses during their earnings call. A new CEO is essential for the company’s long term success and the longer they go without one, the worse it is.
We also want to see that the company is continuing to produce cannabis at industry-leading margins. The company saw a minor uptick in cost per gram last quarter and we want to see that they can continue to produce cannabis long-term at lower costs.
Finally, we will be looking for international revenue growth from ACB as they can now start selling in Germany once again. The company failed to obtain a specific permit last quarter which resulted in Germany from suspending their sales license. It’s important that they start seeing international revenues.
I don’t have my hopes for a “knock your socks off” performance this quarter but any signs of ACB reducing expenses, generating better revenues and/or management changes will be welcomed. Right now, I’m taking a “wait and see approach” and remain optimistic that the company will be able to navigate this increasingly tough economic environment.
(Disclosure: The author is long ACB)
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ACB shares were trading at $0.70 per share on Friday afternoon, down $0.04 (-4.99%). Year-to-date, ACB has declined -67.59%, versus a -11.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More…