Aurora Stock: Do We Place Too Much Weight on Analyst Opinion?

Aurora Stock

Last week, Aurora stock investors got a shock. The company received a downgrade from prominent BofA analyst Christopher Carey, who had previously been very bullish about Aurora Cannabis (TSX:ACB) (NYSE:ACB). The analyst moved his rating from a “Buy” to “Neutral” and cited “cash-burning” as the reason.

While there are some that agree with him, others think the decision too hasty. Either way, Aurora stock was greatly affected and has yet to recover. Shares lost roughly 10% since the announcement and remain at a lower evaluation, selling for $8.70 CAD at present.

Aurora Stock Affected By Analyst Downgrade

When a prominent voice such as Carey downgrades a stock, the effect on price is likely dire. This shows how much importance investors place on the opinion of the pros. There’s nothing wrong with that; however, investors should heed the advice at all times with a hint of caution.

The reason for this is highlighted by analyst Keith Speights, who suggests that often analysts have to make calls based on the short-term and not the long-term.

And in Aurora’s case, the company’s issue regarding cash is nothing new. As Speight puts it:

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“Carey knew this could be a problem when he recommended the stock as a buy on April 17, 2019.”

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So while the downgrade has come as a shock only three months after the analyst issued a Buy rating, perhaps the real shock was the fact that Carey issue the Buy rating to begin with.

Analysts do change their opinion all the time, but do investors place too much weight on these opinions? The outcome tends to mean greatly fluctuating shares.

For example, when Carey issued a ‘Buy’ rating in mid-April, shares jumped over 8% in response.

Aurora Stock: Good and Bad

The analyst did applaud the company despite changing his stance, saying that “Aurora has emerged as one of the best operators in the cannabis sector, with industry-leading scale and margins even versus other large peers.” He added that Aurora has “global optionality.”

Aurora Cannabis is on the verge of having to raise additional cash, so its the short-term prospects are tepid at best. However, solid investments depend on the long-term, so investors must wonder on those prospects rather than the next three months.

What are your thoughts? Are you a fan of Aurora stock?

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