Send me real-time posts from this site at my email
Motley Fool

Don't Buy Aurora Cannabis Stock Until These 3 Things Happen

Yesterday, Aurora Cannabis (NYSE: ACB) unveiled its fiscal 2020 second-quarter results. Even though the company performed terribly on nearly every financial metric possible for the three-month period, the company's stock still ended the day in positive territory.

Some investors, in short, seem to be convinced that the bottom has finally arrived. After all, Aurora's stock is down by a jaw-dropping 80% over the past 12 months, it is in the process of making major changes to the C-suite, and it recently announced a number of structural changes that should drastically reduce expenses from this point forward. Nonetheless, the worst may be yet to come. Here are three specific events that arguably need to take place before Aurora's shares can be considered a worthwhile long-term buy.

Image source: Getty Images.

Don't push the buy button until these three things happen...

  1. Last week, Aurora announced that longtime CEO Terry Booth would step down effective immediately. In his place, Executive Chairman Michael Singer agreed to take command on an interim basis. As Aurora clearly needs a fresh set of eyes, investors probably shouldn't dip their toes in the water, so to speak, until a permanent CEO has been hired. After all, Aurora might be unable to attract a first-round draft pick to fill this key executive position. And without strong leadership, the pot titan may never recover from this rather deep hole.
  2. During its latest earnings call, Aurora's brain trust announced that the remaining amount under the company's at-the-market financing program should be sufficient to get it over the hump financially -- that is, until it reaches "positive EBITDA and good cash flow." While the company has made major strides toward reducing costs by idling key grow facilities and eliminating a sizable chunk of its workforce, Aurora still isn't anywhere near profitability as things stand now. So, in short, the company might ultimately have to recapitalize to become a viable long-term player in this emerging space.
  3. Aurora's recapitalization phase, however, is likely to entail a reverse stock split. In effect, Aurora may have to reduce the number of outstanding shares in order to boost its share price, paving the way for a massive follow-on public offering. At current levels, Aurora can't continually tap the public markets for capital without running the risk of being delisted from the New York Stock Exchange for failing to meet the minimum bid requirement.

What's next?

All eyes are now focused on Aurora's CEO search. The next CEO will have to immediately address the company's problematic balance sheet and fairly weak near-term growth prospects. That's a tall order, to put it mildly, and Aurora will need a healthy dose of luck to find the right person. But the company -- despite these myriad problems -- still has the inside track at evolving into a legit titan of the legal cannabis industry by the end of the decade. That being said, Aurora desperately needs the structural problems plaguing the Canadian cannabis market to evaporate soon. Otherwise, the company's breathtaking value proposition, which has made it one of the most popular stocks among retail investors, could go up in smoke before the end of 2020.

Here's The Marijuana Stock You've Been Waiting For
A little-known Canadian company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.

And make no mistake – it is coming.

Cannabis legalization is sweeping over North America – 11 states plus Washington, D.C., have all legalized recreational marijuana over the last few years, and full legalization came to Canada in October 2018.

And one under-the-radar Canadian company is poised to explode from this coming marijuana revolution.

Because a game-changing deal just went down between the Ontario government and this powerhouse company...and you need to hear this story today if you have even considered investing in pot stocks.

Simply click here to get the full story now.

Learn more

George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


Source

Popular posts

Welcome!!! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue