Aurora stock has been falling since March as the broader cannabis sector is undergoing a correction phase.
Aurora Cannabis (TSX:ACB) (NYSE:ACB) is the second largest cannabis company by market capitalization in the world, and when it makes a significant move, the industry takes notice.
Product Expansion
In a move that could prove to be highly beneficial for the company’s future growth, Aurora on Friday announced that it is going to expand its product offerings significantly and produce in-demand products like vapes, edibles, and concentrates.
The new range of products is expected to be in high demand once they are legalized in Canada, and Aurora’s move is perhaps within expectations. In this regard, it is also important to note that Aurora is among only four cannabis companies that have entered into a partnership agreement with vape manufacturer PAX Labs Inc and this partnership will allow the company to produce high-quality cannabis vaping products for the growing market. It has also been announced that Aurora is going to launch a nationwide campaign that will raise awareness about the safe usage of these new products.
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On the back of such important news, it is worthwhile to figure out how high ACB stock can go. Many experts have stated that Aurora stock might be overvalued, considering the fact that it trades at a price to earnings multiple of 500.
Key Analysis
At this point of time, the company’s market cap is pegged at around $10 billion CAD, and with its stock price at a price to earnings multiple of 500, this indicates that the market expects Aurora Cannabis to generate $200 million in earnings in 2020. In this light, it is important to note that Aurora produced 15,590 kilos of cannabis in the last reported quarter, and additionally, the losses stood at $158 million.
The magnitude of this loss will definitely be a cause for concern for many investors, but at the same time, it should be remembered that the company raised its production capabilities by 99% on a year-on-year basis in the latest quarter.
On an annual basis, Aurora Cannabis produces 150,000 kilos of cannabis and the company projects production capacity of 625,000 by next year. Although it remains to be seen whether Aurora can execute those plans, it needs to be remembered that if it can ramp up production to those levels, then the company could emerge as a very strong player in the industry—but that is an if.
Aurora stock is down 1% at $9.56 CAD. The stock is up 30% so far this year.
Featured image: Canva
