The cannabis company’s all-time high of almost $17 per share is well in the rear view today, with the stock trading at the time of writing at about $10 per share — a price it’s remained at for over a month now.
It’s getting analysts and investors alike frustrated with the stock, wondering if there is any hope to reach those peak numbers again, and, ideally, surpass them.
Well, it turns out that the same rule that applies to the markets as a whole likely applies to Aurora as well. It boils down to one key word we all hate to hear: patience.
Aurora has an incredibly intriguing future ahead of it. While that future can be painful at times, those who stick with the stock will likely see a doubling in share price in the relatively near future. Let’s look at why.
It’s easy to look at Aurora and become discouraged when it comes to the company’s earnings results — or, rather, lack of them. Operating income has been in the red report after report, with the most recent hitting a loss of about $86 million. Granted, it’s an improvement from the last two quarters with a loss of $148 million and $111 million, but it’s still disappointing to see all that red again and again.
But here’s the number I’m most interested in: cost per gram. This is where investors should focus their attention when it comes to the larger marijuana producers; it’s where Aurora has recently had some pretty great results. The company now boasts a cost of sales per gram of $1.42, down 26% from the last quarter and well on the way towards the company’s goal of producing at a cost of $1 per gram.
This metric is already a lot smaller than other leading cannabis producers such as Aphria at $3.90 per gram and $6.40 for cannabis titan Canopy Growth. But what makes this number drool worthy is the cannabis producer’s outlook on production.
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Aurora’s executives have been quite outspoken. In Canada, there isn’t a desperate need to fill when it comes to cannabis; it’s a global phenomenon — one the executives are planning to be set up for in the next five years. To achieve this, the company has been making acquisition after acquisition — 15 in total in fewer than three years. And, of course, it’s been diluting share prices in the process.
While the market cap has been going up, share prices have been going further down. But Aurora is doing this for a reason. The company talks about the cannabis industry being worth about $150 billion globally, with medical cannabis making up $50 billion of that total. That’s a large opportunity looking to be filled.
That’s where Aurora is looking to shine, becoming the leader in terms of production capacity. The goal is to reach 700,000 kilograms of cannabis production per year, making them first even to Canopy Growth at this point in time. No other cannabis producer can get anywhere near numbers like these.
While some analysts have said this would create an oversupply in the Canadian market, again, Aurora is looking for global expansion. It will need the product available once everything is said and done, as the company already has its foot in a number of countries around the world. And again, this need could be in a mere five years.
Aurora offers one of the best options out there. In my view, this is a buy-and-hold investment, with the $10 share mark an opportunity for investors looking to get in on the cannabis market and have some patience with it. The potential for growth is high, and the company continues to be a rival with some of the largest cannabis companies out there for production potential. Even if cannabis goes global and they have a small amount the market share (which, by the way, should be much larger), Aurora stands to make billions in profits.
In the next year, analysts predict Aurora could double to $20 per share. In a decade, with potentially the U.S. and most of Europe on board with cannabis legalization, that number could soar into the stratosphere.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Amy Legate-Wolfe owns shares of Aurora Cannabis and Canopy Growth.