Amid improving corporate earnings, the Canadian equity markets have continued their uptrend, with the benchmark index, the S&P/TSX Composite Index, trading over 24% higher for this. Also, the index is trading just 0.5% lower than its all-time high. Despite these bullish sentiments, the following two Canadian stocks have witnessed a significant sell-off recently and are trading at over a 50% discount from their recent highs. So, let’s examine whether buying opportunities exist in any of these two stocks?
Goodfood Market
Yesterday, Goodfood Market (TSX: FOOD) reported its fourth-quarter earnings, which ended on August 31. For the quarter, the company’s top-line declined by 5.2% to $79.36 million. The company’s management has blamed the decline in demand due to the easing of restrictions, rising vaccination, and seasonality for the sales decline.
The company’s adjusted EBITDA came in at a loss of $17.8 million compared to a profit of $4.84 million in the previous years’ quarter. The de-leverage from lower sales and increase in production, fulfillment, and SG&A expenses weighed on its financials. The weak fourth-quarter performance led to a sell-off, with its stock price falling over 26% yesterday. After yesterday’s steep correction, Goodfood Market is trading at a 64% discount from its January highs.
However, Goodfood Market is strengthening its production and delivery capabilities. It continues to invest in expanding its fulfillment networks and technology to support its recently launched on-demand one-hour or less delivery service in Toronto. It also expects to expand the service to Montreal in the coming days. These investments and increasing adoption of online grocery shopping could boost its sales in the coming quarters.
Given its healthy outlook and an attractive forward price-to-sales multiple of 0.9, I believe investors with over three years of investment time frame can accumulate the stock for superior returns.
Aurora Cannabis
Second on my list would be Aurora Cannabis (TSX: ACB)(NYSE:ACB), trading over 58% lower from its February highs amid the weakness in the cannabis sector. However, the sell-off offers an excellent buying opportunity for long-term investors, given its improving financials and healthy outlook.
In its recently posted first-quarter earnings, Aurora Cannabis’s top-line fell 11% year over year to $60.1 million due to a weak performance from the recreational cannabis segment, which witnessed a decline of 44% in its sales. However, its medical cannabis sales saw strong growth in both the domestic and international segments. Its adjusted EBITDA losses declined from $58.1 million to $12.1 million due to improved gross margin and cost-reduction initiatives. Its cash burn also declined from $142.8 million to $16.55 million.
Meanwhile, Aurora Cannabis is a market leader in the Canadian medical cannabis space, with a market share of 23%. The company is allocating more resources to strengthen its position further. With just 1% of Canadians currently using medical cannabis, the company has significant scope for expansion. So, it focuses on educating patients while also navigating them through alternative treatments to grow its clientele. It also looks to strengthen its position in Israel, the U.K., Australia, and France.
Aurora Cannabis also plans to launch higher THC content and premium products to boost its recreational cannabis sales. Along with these growth initiatives, the company’s transformational business plan could help the company move toward profitability.
Despite its healthy growth prospects, the company trades at a price-to-book multiple of 1. So, I expect Aurora Cannabis to deliver superior returns over the next three years.
