The Motley Fool

Forget Aurora Cannabis (TSX:ACB): Buy This Pot Stock Instead!

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There’s been a lot of excitement recently surrounding Aurora Cannabis (TSX:ACB)(NYSE:ACB) and the progress the company’s been making of late. Sales are growing again, and the company also announced that it was going to expand into the U.S. cannabidiol (CBD) market through the acquisition of Reliva.

It’s an exciting opportunity for investors, but Aurora’s still a stock that has some serious challenges ahead of it. The company incurred a loss of $137 million in its last quarter, and while it’s made progress, getting to breakeven is still a far road ahead for Aurora investors.

The pot stock has let investors down in the past — something you should keep in mind before taking a chance on the stock. Year to date, shares of Aurora are down around 40%.

A safer alternative

One company investors have shown more excitement around this year is Village Farms International Inc (TSX:VFF)(NASDAQ:VFF). While shares of the cannabis company are down 8% in 2020, that’s still far better than the decline Aurora investors have been on this year. Shares of Village Farms soared on May 14, when the company announced that it was profitable for a fifth consecutive quarter.

Even when looking at its net income, Village Farms has reported a positive profit in four of its past six periods. Although the company’s operating income has consistently been in the red in each of its last 10 quarters, strong results from Pure Sunfarms have enabled Village Farms to produce profitable results.

Village Farms is also a cheaper buy

When looking at the valuations of the two companies in relation to their sales, it’s clear that Village Farms also gives investors more for their money:

ACB PS Ratio Chart

ACB PS Ratio data by YCharts

Even with Aurora’s sharp decline in price over the past year, it’s still more expensive than Village Farms. Investors aren’t paying much of a premium to own shares of Village Farms, and with a profitable business, it’s less of a risk to invest in today.

Given the uncertainty surrounding COVID-19 and how it may impact the cannabis industry, investors are safer holding shares of companies that are profitable and with sustainable business models. And Aurora hasn’t proven that it belongs in that group.

Aurora is working toward being profitable, but Village Farms is already at that stage. And at a cheaper valuation, it’s a better buy today.

Bottom line

Pot stocks as a whole are still pretty risky right now. But Aurora’s one of the more volatile investments you can hold in your portfolio. It can send you on a roller coaster ride with its wild swings in price. With Village Farms, investors are getting a bit more stability, and it’s a safer way to invest in the cannabis industry right now.

Until Aurora is able to demonstrate that it’s consistently making progress towards breakeven, investors shouldn’t be so quick to get on the hype train again.

Although it has fewer sales, Village Farms is the better buy right now and the stock is less likely to send your portfolio into a tailspin.

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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 David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of Village Farms International, Inc.

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