Aurora Hashish (TSX:ACB) has arguably been the worst-performing marijuana inventory within the final 5 years. Valued at $283 million by market cap, shares of the licensed hashish producer are down 99% from all-time highs, burning large investor wealth within the course of.
Aurora Hashish inventory was buying and selling at document highs in 2018, simply earlier than Canada legalized marijuana for leisure use. Throughout that interval, investor optimism was buoyant, leading to steep valuations for many Canadian hashish producers.
Aurora Hashish and its friends plowed in capital to scale up their manufacturing capabilities and acquire traction in a number of markets. Additional, these firms acquired smaller opponents at a hefty premium to achieve market share.
Nevertheless, the hashish market is closely regulated, ensuing within the gradual rollout of retail shops in main Canadian provinces. The speedy growth in manufacturing additionally led to an oversupply of hashish merchandise in Canada. Furthermore, home producers needed to wrestle with cannibalization of market share from unlawful gross sales.
These components resulted in greater stock ranges, multi-billion-dollar write-downs, and large losses for Aurora Hashish and different TSX marijuana firms.
Let’s see if Aurora Hashish may also help stage a rebound within the subsequent 12 months and get well a portion of its losses going ahead.
How did Aurora Hashish carry out in Q2 of fiscal 2024?
Within the fiscal first quarter (Q1) of 2024 (ending in June), Aurora Hashish reported income of $63.4 million, a rise of 30% 12 months over 12 months. It additionally reported an adjusted EBITDA (earnings earlier than curiosity, tax, depreciation, and amortization) of $3.4 million in comparison with a lack of $6.2 million within the year-ago interval.
In current quarters, Aurora Hashish has targeted on enhancing its revenue margins by growing gross sales of medical marijuana merchandise. In truth, after reporting a number of years of losses, Aurora Hashish expects to finish fiscal 2024 with a constructive free money circulation.
Nevertheless, traders ought to word that the medical marijuana market is way smaller than the leisure section. Attributable to greater revenue margins, different firms are additionally concentrating on this vertical, which can be one motive why the inventory market hasn’t rewarded Aurora’s shift in technique.
The U.S. could also be a large market
The U.S. is the most important hashish market on the earth, however pot stays unlawful on the federal stage. In 2023, the U.S. Division of Well being and Human Companies advisable the nation’s Drug Enforcement Administration to declassify marijuana as a Schedule I drug.
Traders are hoping the U.S. will decriminalize and finally legalize marijuana on the federal stage, which can be a key income driver for Canadian pot producers.
Nevertheless, the U.S. already has a number of hashish firms that take pleasure in an entrenched place in markets the place the product is authorized. Furthermore, a majority of those firms are worthwhile and have a powerful stability sheet, making it troublesome for brand spanking new gamers to seize market share.
Is ACB inventory undervalued?
Analysts monitoring Aurora Hashish count on the corporate to report income of $272 million in fiscal 2024 and $314 million in fiscal 2025. Its adjusted loss per share is forecast to slender from $1.45 per share to $0.47 per share on this interval.
ACB inventory may appear undervalued, but it surely stays a high-risk funding. It first must report constant earnings whereas growing income to regain investor confidence.
