Leveraging both capacity and quality, Aurora Cannabis stock is a cut above the competition
By Josh Enomoto, InvestorPlace Contributor
Over the long run, I remain net bullish on legal marijuana. However, my optimism for the sector doesn’t cloud reality. I can see as plain as daylight that the honeymoon phase is over. Now, companies like Aurora Cannabis (NYSE:ACB) must provide the goods. If not, ACB stock could face serious trouble.
Unfortunately, this isn’t just a hypothetical musing.
After jumping to a tremendous start to 2019, Cronos Group (NASDAQ:CRON) started to weaken ahead of its fourth-quarter earnings report. On the disclosure of the financial print, Cronos rang up disappointing revenue. As a result, shares slipped badly.
On the one hand, it’s questionable if CRON can recover in the nearer term. On the other hand, Aurora Cannabis stock presents a contrasting picture. On a year-to-date basis, shares are up over 85%. Not only that, ACB is one of few publicly traded cannabis firms that has generated shareholder profits every month thus far.
How does ACB stock stand out from the competition? Primarily, management consistently delivers ridiculous sales growth. For instance, in its most recent fourth-quarter earnings report, the company generated 54.2 million CAD. Against the year-ago level, revenue had skyrocketed 363%.
However, not everything about Aurora Cannabis stock embodies confidence, which is why shares have sometimes exhibited volatility. For instance, in Q4 2018, analysts recognized a glaring defect in Aurora’s numbers, and management disclosed losses of nearly 238 million CAD.
In Q4 2017, Aurora only mustered 11.7 million in sales. However, they translated that comparatively small haul into 7.7 million in profits. With the latest earnings result, it appears Aurora is taking one step forward and two steps back.
Understandably, stakeholders and prospective buyers in ACB stock want a clearer and more consistent picture before diving into Aurora shares. But if you’ve got the nerve, Aurora is one of the most credible names in the sector.
Multi-Layered Tailwinds Boost ACB Stock
Whenever anyone discusses Aurora Cannabis stock, one of the top bullet points is production capacity. According to its website, Aurora has 11 production facilities, translating to a total funded capacity exceeding 500,000 kilograms a year.
To put that into context, ACB’s only real rival in this space is Canopy Growth(NYSE:CGC), which forecasts similar figures. But from there, the competition drops offdramatically. Although they round out the top four, Aphria (NYSE:APHA) and Green Organic Dutchman (OTCMKTS:TGODF) can only produce approximately 255,000 kilos and 195,000 kilos, respectively.
But it’s not just outright capacity that makes ACB stock shine. Rather, management has made in my opinion strategically powerful decisions. A prime example is Aurora’s buyout of Whistler Medical Marijuana. Several critics blasted the move due to Whistler’s puny 5,000 kilos of annual production.
What they overlooked was Whistler’s specialty, which isn’t focused on quantity, but rather quality. The acquired company features an extensive genetics bank from which they produce strain-specific products.
This is a critical point because growing marijuana isn’t rocket science. But finding the right strain to address certain ailments? That’s very much a vital skill set, and the Whistler buyout will help distinguish Aurora Cannabis stock.
Combined, ACB is better positioned than most to advantage the U.S. government’s slow but steady progress toward full legalization. While I don’t want to make too many bold predictions about our political landscape, the signs certainly justify optimism.
And what if the rest of the world opened to legalization? That would definitely spike ACB stock. Better yet, it’s not out of the realm of possibility. Last year, Thailand and South Korea — which are both conservative countries — legalized medical cannabis. Although heavy restrictions apply, these are unprecedented examples of forward thinking.
Don’t Shy Away From ACB Stock
Despite making my pitch for ACB stock, it pays to have a cautious approach. Unlike other industries, cannabis is extremely emotional. Bad news travels very quickly here, and sometimes unfairly.
Plus, you’re talking about an investment that has soared in a very short period. I don’t care what it is, nothing rises indefinitely without incurring a correction. Given sector fears and concerns about sustainability, I wouldn’t be surprised if Aurora Cannabis stock takes a hit.
But if it does, you can bet that I’ll be eyeballing my desired entry point. When you have both capacity and credibility in this segment, you’re more likely to win out in the long run.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.