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

Although Aurora Cannabis (TSX:ACB)(NYSE:ACB) has been doing well in recent weeks, investors shouldn’t be rushing out to buy the stock today.

| More on:

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.

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.

More on Cannabis Stocks

money goes up and down in balance
Dividend Stocks

2 Incredibly Cheap Growth Stocks to Buy Now

These two growth stocks are both unbelievably cheap and have significant long-term potential, making them some of the best to…

Read more »

A cannabis plant grows.
Stocks for Beginners

1 Canadian Cannabis Stock Down 57% to Buy Now for Future Growth

Cannabis stocks might seem so 2018, but this one could eventually make a major comeback.

Read more »

Cannabis business and marijuana industry concept as the shadow of a dollar sign on a group of leaves
Stocks for Beginners

Buy the Dip Before It’s Too Late: This Canadian Stock Won’t Stay Cheap Forever

Investors might think that cannabis stocks are out, but this one could be the top Canadian stock to consider.

Read more »

a person watches a downward arrow crash through the floor
Stocks for Beginners

Plummet Alert: Is This TSX Growth Stock a Bargain or a Falling Knife?

This growth stock was once a major winner, but can investors wait for more?

Read more »

Medicinal research is conducted on cannabis.
Cannabis Stocks

What to Know About Canadian Cannabis Stocks for 2025

Let's dive into two top Canadian cannabis stocks and where they may be headed from here (given the recent moves…

Read more »

Researcher works in hemp field
Cannabis Stocks

Aurora Cannabis Stock Is up 46% in 2025: Are Investors Going From 5 Years of Pain to a 2025 Gain?

Shares of Aurora Cannabis have staged a comeback in 2025, outpacing the broader markets comfortably. Is ACB stock a good…

Read more »

A plant grows from coins.
Stocks for Beginners

3 Growth Stocks That Could Skyrocket in 2025 and Beyond

It could be a big year for these sectors, and these growth stocks in particular throughout 2025.

Read more »

money goes up and down in balance
Tech Stocks

2 TSX Stocks to Buy and 2 to Avoid in the Looming Trade War

The looming U.S.-Canada trade war has changed the business environment. Here are some TSX stocks to buy and avoid in…

Read more »