The Motley Fool

Forget Aurora: This Could Be a Hotter Pot Stock to Buy

Image source: Getty Images

Since Aurora Cannabis (TSX:ACB)(NYSE:ACB) released its quarterly results several weeks ago, there’s been some bullishness surrounding the stock. But investors shouldn’t be so quick to jump on the bandwagon. Aurora is a stock that’s let investors down time and time again. The company is bloated with expenses and has spread into too many different locations; it’ll take a massive cleanup effort to make the stock investable.

And rather than wait for Aurora to become a justifiable investment at its nearly $2 billion market cap, investors are likely better off looking elsewhere.

A pot stock with an advantage over Aurora

One of the reasons I’m not terribly optimistic about Aurora’s future is that unlike other cannabis companies, it’s failed to secure a key partner from another industry. While having a big investor from another industry won’t necessarily fix what’s wrong with a business, it can help make it more stable. It can also open up attractive opportunities in the process.

That’s exactly why Fire & Flower Holdings (TSX:FAF) could be an underrated buy right now. The pot stock partnered with retail giant Alimentation Couche-Tard last year. The two companies working together could dominate the retail space in the cannabis industry. And so far, Fire & Flower has done a great job of growing.

On June 16, the pot retailer released its first-quarter results of 2020. Its sales of $23.1 million were up 142% from a year ago when it generated just $9.5 million in revenue. The company also incurred a smaller loss than it did a year ago. Revenue in Q1 was also up 38% from the fourth quarter where Fire & Flower reported sales of $16.8 million.

What’s impressive is that the Q1 results were up until May 2, which would’ve included the full month of April. That would have been well into the pandemic and after all the panic buying had ended. And yet, Fire & Flower still showed strong sales numbers. That’s an encouraging sign for cannabis investors, as it shows that COVID-19 hasn’t kept the company’s sales from growing. Fire & Flower has adapted, depending on the market, by offering home delivery and curbside pick-up to allow consumers to continue to purchase cannabis safely during the pandemic.

Fire & Flower is a dirt-cheap buy given its growth potential

In its earnings release, Fire & Flower noted that there was “meaningful demand” for new Cannabis 2.0 products during the quarter. The new products only started hitting store shelves late last year in Canada and could keep Fire & Flower’s sales strong throughout 2020. There’s still a lot of reason to be optimistic that the cannabis retailer will continue to do well this year even amid the pandemic.

With the stock trading at around just 1.7 times its revenue, Fire & Flower is a ridiculously cheap buy compared to a larger stock like Aurora that trades at around six times its revenue.

If you’re looking for a good growth stock or just a smaller pot stock that has more upside than Aurora, Fire & Flower could be a great pick today. It’s loaded with potential, and it doesn’t cost much to own right now.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

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 recommends ALIMENTATION COUCHE-TARD INC.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.