Aurora Cannabis is a Canadian cannabis company. ( ACB 1.46% ) The company was able to generate a favorable amount of cash in its latest financial quarter, which is seen as a positive outcome by its management who believe this trend will persist. Additionally, the company also experienced a substantial increase in revenue by a percentage in the double digits.
Aurora has received a lot of positive news in one quarter, which has fueled the stock’s upward momentum.
Before deciding to invest in the stock, it is important to carefully examine the financial figures. While the company performed well in the last quarter, it does not guarantee continued success in the future.
The cannabis company is anticipated to experience a decrease in sales growth in the following quarters. Despite appearing to be a more secure investment option at the moment, there are important factors to evaluate before making any investment decisions.
Aurora’s performance was enhanced by the growth of the company’s plant propagation business.
In the first quarter of fiscal 2025, ending on June 30, Aurora recorded a net revenue of 83.4 million Canadian dollars ($60.7 million), marking a 12% rise compared to the previous year. The growth was primarily attributed to the increase in plant propagation revenue, which amounted to CA$23.1 million, showing a 16% annual growth. The medical marijuana segment experienced a 13% growth, whereas consumer cannabis sales saw a decline of 10%.
In recent times, Aurora has been transitioning its focus towards the medical marijuana sector due to the potential for higher profit margins compared to the consumer market. Additionally, the company purchased a majority stake in Bevo, a leading supplier of cultivated plants in North America, in 2022. This move was aimed at expanding its business diversification and revenue streams, reducing its dependence on the fiercely competitive consumer cannabis market.
Aurora had positive results in the first quarter, however, there are still potential risks associated with the business.
Despite a positive quarter, investors should be prepared for fluctuations in the market. This is due to the fact that the plant propagation industry is heavily influenced by seasonal patterns. Most of its income and profits are generated in the initial six months of the year, leading to potential fluctuations in earnings each quarter.
In the latter part of the year, Aurora’s sales may experience a decrease. This decline is expected to come from the plant propagation sector, and the performance of the domestic consumer cannabis division may remain challenging, especially as Aurora focuses more on the medical market.
The company cautions that despite achieving a positive free cash flow of CA$6.5 million in the most recent quarter (which represents the remaining cash flow after deducting capital spending), there will be increased cash outflows in the current quarter due to certain one-time cash payments. Free cash flow Free cash flow may vary because of the timing of receiving payments from customers and making payments. Investors should expect the possibility of free cash flow turning negative again later this year.
One more concern I have noticed is that despite an increase in revenue, the company’s gross profit, which does not consider changes in fair value on its biological assets, was only CA$30.1 million in the recent quarter. Additionally, the company allocated a larger amount of money towards sales, marketing, and general and administration expenses (CA$36.5 million). The company has yet to demonstrate the sustainability of its operations and its ability to generate profits without depending on gains from fair value.
Should I invest in Aurora Cannabis stock?
Aurora Cannabis has been performing quite satisfactorily this year, experiencing a rise of over 40% in its shares up to this point. pot stock The stock is currently trading at a value lower than its book value, and its price-to-sales ratio is only 1.9. Investors purchasing the stock are able to do so at a slight discount.
However, this investment still carries a significant level of risk.
Although the company has made significant progress in enhancing its operations in the past few years, most investors are advised to steer clear of Aurora. The company is not a promising growth stock due to its unstable revenue, and its fundamentals are not robust enough to appeal to value investors.
