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Stone Fox Capital Advisors is a registered investment advisor founded in 2010. The firm offers portfolio management with a focus on opportunistic stocks providing secular growth trends at an affordable value. An emphasis is placed on fundamental analysis though charts are used for timing entry and exit points. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA. Invest with Stone Fox Capital's model Net Payout Yields portfolio on IB Asset Management as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here: Follow Mark on twitter: @stonefoxcapital

Aurora Cannabis (ACB) Stock Is a Buy, But Wait for a Better Entry Point

With the stock collapsing following the reverse split, Aurora Cannabis (ACB) needed a strong quarter to change the trend. The Canadian cannabis company is in the middle of a transformational plan that doesn’t always work out as planned.

The company delivered in spades. Not only did Aurora report crucial progress in cutting out of costs, but also the company smashed revenue estimates during the coronavirus outbreak. The stock has bounced strong off the lows and is likely headed higher now.

According to TipRanks, the consensus on Wall Street is that Aurora Cannabis stock is a “hold” for investors. On one hand, TipRanks might as well have said “buy” — because analysts, on average, think the stock, currently at $10.44, could zoom ahead to $12.78, delivering about 20% profits to new investors. On the other hand, Aurora stock could present investors with better entry points than at $10.44 per share.

Dazzling Quarter

While the company only guided to a modest sequential revenue increase from the prior quarter, Aurora Cannabis grew total revenues by over C$11.8 million to C$78.4 million. The company saw impressive growth in Canadian recreational cannabis sales due to the introduction of the value brand while international medical cannabis rebounded with Germany sales back online.

A big key here is that gross margins remained a healthy 54%. The value brand wasn’t destructive to margins setting Aurora on a path to reaching EBITDA profits for the first time in years.

Aurora cut SG&A expenses that swelled to C$99 million in FQ2 by C$24 million to C$75 million. More importantly, the company is on a SG&A run-rate of C$55 million currently and expects to reach the C$45 million goal by quarter end. The number is far more impressive considering R&D expenses were pushed into the C$45 million target while costs were over C$5 million in the last quarter.

The end result was a big C$34 million cut to the adjusted EBITDA loss. Another C$30 million cut in operating expenses in FQ4 gets the Canadian cannabis company close to EBITDA breakeven.

Cash Burn

Some analysts had estimated that Aurora Cannabis burned up to C$200 million in cash during the March quarter, but the number only hit C$154 million. Similar to the cut in operating expense, the company expects to make a huge leap forward in the June quarter cash burn that is a game changer for building shareholder wealth.

The company ended the quarter with C$230 million in cash and is likely to reduce cash burn below C$50 million in the current quarter. First, the operating losses are likely reduced by at least C$30 million from the cash burn levels. Second, the capital spending is forecast to dip C$50 million from the prior quarter to below C$25 million in the current quarter.

While it took a long time, Aurora Cannabis finally has its fiscal house in order. The company should reach EBITDA positive in the September quarter with decent revenue growth in Canada from additional retail stores in Ontario and further expansion of Cannabis 2.0 products. Not to mention, the larger companies are likely beneficiaries of weaker players struggling in the current economic climate.


The key investor takeaway is that the valuation equation for Aurora Cannabis is far more interesting here as the market pushed the stock to post split lows of $5.30. Even at the $11 level following a big rally, the stock only has a market cap of $1.15 billion.

Investors should feel much more confident in the stock here with reasonable expectations for FY21 revenues topping $300 million and the company having limited funding going. The stock is likely to make a continued rally here, but investors should wait for a pullback first to buy here after the big rally.

To find good ideas for cannabis stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

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