Valued at over $13 less than a year ago, Aurora stock has had a disastrous few months as it fell more than 75% in 2019. While the broader struggles of the market have led to similar drop-offs in most pot stocks, Aurora Cannabis's (TSX:ACB) (NYSE:ACB) status as an industry leader has prompted some to float the question—is it too big to fail?
Recently described as the "Titanic of Marijuana Stocks," the recent performance of Aurora stock bears all the hallmarks of market leader thought of as simply too good to fail. However, several forecasts and price targets for the pot stock, coupled with Aurora's dismal performance, have cast some doubt over that theory.
Analysts Slash Coverage on Aurora Stock
On December 18, GLJ Research initiated coverage on Aurora Cannabis with a sell rating and a price target of exactly $0, with analyst Gordon Johnson indicating that Aurora stock is essentially worthless. While other analysts weren't as scathing in their forecasts, Michael Lavery of Piper Sandler also downgraded Aurora from neutral to underweight and cut his price target from US$3.00 to US$1.00, and Bank of America's Christopher Carey slashed his 12-month price target from C$4.00 to C$1.50.
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Despite having a market cap of C$2.86 billion, making it the second-largest publicly traded cannabis firm in the world, Aurora currently looks like it will be unable to pay its debt covenants on a C$360 million loan due August 2021. Lavery cited a debt covenant that requires Aurora Cannabis to keep its debt to EBITDA ratio below 4:1 after September 30, 2020, which now doesn't look realistic until Q2 2020. Aurora stock's dismal performance continued into 2020 with the departure of CFO Cam Battley, who oversaw a 24% decline in revenue in the most recent quarter.
Too Big to Go Down?
After a disastrous performance in the 1973/74 season, then Manchester United manager Tommy Docherty described his club as "too big to go down." Just six years after winning the European Cup, many felt he was correct in his assertion; however, after a defeat to local rivals Manchester City in the penultimate game of the season, Man United's 29-year stay in the top division was ended. That old phrase is often repeated today in financial terms when the big banks find themselves in trouble, and now rings true for Aurora stock: no one is ever too big to go down.
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