Are happy days here again for Aurora Cannabis(NASDAQ: ACB)? Some might think so.
Shares of the Canada-based cannabis operator began a steep downhill slide in 2019. By the end of 2023, Aurora Cannabis had lost nearly 98% of its market cap. But the stock is on a roll so far this year, jumping more than 30%.
Is Aurora Cannabis a smart stock to buy on the rebound? I don't think so. Here's why it's one stock I wouldn't touch with a 10-foot pole.
Three strikes against Aurora Cannabis
The first strike against Aurora in my view is its sluggish revenue growth. The company's revenue rose only 5% year over year in the quarter ending March 31, 2024. Digging into what drove that growth doesn't make me feel better about Aurora.
Aurora's consumer cannabis net revenue fell nearly 30% year over year in the latest quarter. The company said the decline stemmed from its decision to prioritize supplying its higher-margin international business. Aurora's medical cannabis revenue jumped 20% year over year. The company's recent acquisition of MedReleaf Australia contributed significantly to this increase, so Aurora's organic growth wasn't nearly as impressive.
Strike two is that Aurora Cannabis remains unprofitable. The company posted a net loss of 20.8 million in Canadian dollars in its fiscal 2024 fourth quarter. Sure, Aurora's bottom line improved. However, it's uncertain when the cannabis operator will achieve profitability.
What's strike three? Aurora doesn't have access to the lucrative U.S. cannabis market. It doesn't even have a clear path to entering the U.S. market.
A few positives ;
To be fair, Aurora Cannabis does have a few things going for it. For example, the company's cannabis business is 100% debt-free. Aurora's only debt is 57.3 million in Canadian dollars related to its Bevo Farms stake.
While Aurora isn't profitable, it is at least generating positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Even better, the company has reported six consecutive quarters of positive adjusted EBITDA. Aurora also believes it's on track to deliver positive free cash flow by the end of the calendar year 2024.
Perhaps the best news for Aurora stems from Germany. The country recently relaxed its cannabis laws to allow recreational marijuana use and simplify access to medical cannabis. The latter is more important for Aurora. Germany is its biggest European market. Aurora Cannabis is one of only three companies in the country that operate a domestic cultivation facility.
The biggest knock against Aurora Cannabis
Despite these positives, I still wouldn't buy Aurora Cannabis stock. There's one other knock against it that I think is the biggest of all: There are far too many better stocks to profit from the growth in the cannabis market. I'll single out one of them -- Green Thumb Industries(OTC: GTBIF).
Unlike Aurora, Green Thumb continues to deliver solid double-digit percentage revenue growth. It's consistently profitable with diluted earnings per share soaring 240% year over year in the company's latest quarter.
Green Thumb ranks as one of the biggest multistate cannabis operators in the U.S. It has 96 retail locations and counting across 14. states. It's in a strong position to grow with Ohio opening its adult-use cannabis market and Florida citizens voting on the potential legalization of recreational marijuana in November.
None of the strikes against Aurora Cannabis apply to Green Thumb. And there are other U.S. cannabis stocks with similar favorable profiles. Why buy a stock like Aurora when there are better alternatives?
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Green Thumb Industries. The Motley Fool has a disclosure policy.
