Aurora Stock: Up 10% After Recent Dip, Is Supply Outpacing Demand?

Aurora stock

Aurora stock closed up 10% yesterday. Going into today’s trading day, shares are currently selling for $7.87 USD.

Aurora Cannabis (TSX:ACB) (NYSE:ACB) hit a dip recently; last week shares lost 15% in the course of five days. With shares now seemingly turning things around, the volatility here is palpable because there’s no significant catalyst causing the surge.

Aurora Stock and Indecision

The market appears to be in the throes of indecision as a whole. ACB stock is up over 50% so far this year; however, it has dropped roughly 30% from March highs. The recent weakness is potentially due to tensions in the America/China trade war, which are affecting multiple industries. But it’s also just as likely that there are concerns about cannabis supply in Canada.

Growth and Earnings

Aurora’s growth has been impressive: quadrupling net revenue year-over-year during its fiscal Q3 report; however, Aurora stock still fell on these metrics and continued to drop shortly thereafter.

According to SeekingAlpha, the problem lies with a confused market:

“The problem for ACB stock, and for the space as a whole, seems reasonably simple: investors are trying to figure out what’s next. So far, neither Aurora Cannabis nor the industry seems to have the answer the market wants to hear.”

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Aurora Stock Falls After Its Earnings

As stated, ACB stock reacted negatively to the company’s Q3 report. Though revenue and earnings missed Wall Street expectations, it wasn’t by much. But the company quadrupled revenue and showed that “gross margins held up reasonably well, even though lower-margin, dried products made up a higher mix of its output.”

Herein lies one potential problem for investors. As the company is pumping up its dried flower output, Health Canada is publishing startling figures about the lack of demand for legal dried flower across Canada.

Cannabis Demand in Canada

In April, Aurora announced it was increasing production from 80,000 kg to a total of 625,000 kg. This is now a troubling decision because figures from Health Canada show that demand for adult-use cannabis isn’t growing.

During Q1 2019, the supply of saleable dried cannabis surged over 60% to 30,802 kg. However, March sales were worryingly similar to December’s at 7,600 kg. What’s worse is that “unfinished inventory surged to 143,773 kg. Combined inventory of 174,575 kg is enough supply for nearly 23 months or almost two years at current monthly sales levels.”

With Aurora effectively blocked out of the US market, who is going to be buying its mass of dried cannabis? Is this the reason a bearish trend has taken hold of Aurora stock lately? Do you have any idea why the company is surging back 10% today?

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