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What’s Next for Aurora Cannabis (TSX:ACB) Investors?

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Top pot stock Aurora Cannabis (TSX:ACB)(NYSE:ACB) continues to disappoint investors. The stock plunged to six-month lows after reporting weaker quarterly earnings on May 14. Aurora Cannabis stock has been a big wealth destroyer lately, losing more than 60% in the last 12 months.

Aurora Cannabis: Q3 2021 earnings

One of Canada’s biggest weed growers, Aurora Cannabis reported revenues of $55.1 million for the quarter ended March 31, 2021. This was a decline of 25% compared to the same quarter last year. A bigger concern for investors more than this decline is the fall in its recreational segment.

Aurora’s revenues from the recreational segment, which offers significant growth prospects, dropped a steep 53% during the quarter. The pandemic-ensued restrictions and higher competition from the black markets weighed on the top line. Medical cannabis reported decent revenue growth of 17% for the fiscal third quarter.

Aurora Cannabis has been struggling on the financials front for long. The pandemic has only added to its woes. It was one of the most popular pot stocks on the street sometime back. However, after more than two years of cannabis legalization, this Canadian top pot stock has notably lost its sheen.

The management expected to achieve positive adjusted EBITDA in fiscal Q1 2021. However, after three quarters, Aurora does not seem close to that. Its adjusted EBITDA stood at negative $24 million for the recently reported quarter, expanding from a negative $16.8 million in Q2 2021.

Aurora Cannabis reported a net loss of $164.6 million in fiscal Q3 2021 against a loss of $133 million in the same quarter last year.

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The cannabis industry continues to struggle

The legalization in the U.S. will open up substantial growth opportunities for the cannabis industry. However, challenges have plagued this high-growth sector. There has been a flurry of pot players coming to the market, which led to the oversupply. Additionally, there has been a relatively slower launch of retail stores that further dented the demand. Black market sales have also been rampant and have been eating up the market share of the organized sector.

Aurora Cannabis has issued fresh equity shares in the past to raise capital. In 2016, it had a total of 10.75 million shares outstanding, while the number jumped to 194 million at the end of March 2021. Every time a company issues new shares, its existing shareholders’ ownership gets reduced, making each share less valuable.

ACB stock: Valuation

Aurora Cannabis stock has been notably weak recently and has lost 67% since its 52-week high of $27 in February. The stock is currently trading close to five times its sales, which seems stretched against the industry average.

On the positive side, Aurora Cannabis might provide some respite to investors on the liquidity front. Its balance sheet strength has improved in the last few quarters. At the end of March 2021, it had a cash balance of $520 million, which it aims to use for potential mergers and acquisitions.

Aurora has a strong production capacity and internationally diversified operations. Its weaker quarterly results could weigh on the stock in the short term. A strong performance in the recreational segment and disciplined cost management could turn the company around. However, that may not happen anytime soon.

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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 Vineet Kulkarni has no position in any of the stocks mentioned.

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