Insights

3 Early Signs This Crushed Growth Stock Might Be in a Turnaround

Regrettably, Aurora Cannabis (NASDAQ: ACB) hasn’t been a good growth stock for most of its investors. Its shares are down by just over 98% in the last three years, it’s (still) nowhere near profitable despite being more than a year into a cost-cutting transformation, and its revenue has steadily declined over time.

But sometimes the best investments are the ones that nobody else can see the value of (yet). And while it’s far too early to call it a comeback, there are three signs that could portend a brighter future for Aurora, so let’s weigh each of them to see if they might be enough to justify a contrarian play.

1. It’s paying down debt

Debt is only one component of Aurora’s issues, but it’s hard to argue that less is better. While the company isn’t particularly indebted, with around $388.1 million Canadian dollars ($300.4 million) in debt and capital lease obligations, the cultivator is making steady progress in deleveraging, which eventually will free up more of its cash flow for reinvesting in growth.

On June 3, it repurchased $20 million of its convertible senior notes, which will lead to cash savings of around $7.5 million in interest payments annually.​ That’s on top of the $100 million in convertible debt repurchased from earlier in the year.

If this progress continues, it’ll be a positive sign for the company’s long-term health, as it’ll regain the ability to take out new debt at an attractive rate to finance expansion. Still, cutting production and distribution costs to approach profitability will probably need to happen first, so reducing debt load isn’t a reason on its own to buy the company’s shares.

2. It’s accumulating some cash, and it can raise even more

Unprofitable businesses burn a lot of money, and with trailing-12-month operating expenses in excess of $182.2 million, Aurora is no exception. But thanks to a bought-deal offering that closed on June 1, it’s sitting on a fresh cash infusion of $172.5 million. That leaves it with a total war chest of $354.4 million as of June 3. And it has the ability to raise an additional $186 million via its existing at-the-market facility should it need to. 

In short, don’t expect Aurora to go out of business anytime soon. It’ll need to get its cost of goods sold a bit lower in the near term, however; its trailing-12-month cost of revenue was more than $153 million. Improvements in the efficiency of its cultivation operations could be key in paving the way, which might require it to make more cuts to its output capacity.

Investors should keep an eye on whether such cuts are expected to result in lost revenue from an inability to serve demand. Though seeing money left on the table might be painful, it would help the business to stretch the cash it has, and it could be favorable for its long-term survival.

3. Short interest is falling over time

One of the clearest indicators that the market expects a stock to drop is the amount of short interest in a company’s shares. The more people who are shorting a stock, the more pessimistic the expectations are. And in Aurora’s case, short interest is dropping over time, falling by more than 28% in the last 12 months. That leaves it with around 8.8% of its outstanding shares being held short, a far cry from the more than 25% toward the end of 2020.

For reference, Tilray Brands, a major competitor in the Canadian cannabis market, has nearly 13.6% of its shares held short; massive and stable companies like Apple tend to have less than 1%. So the market’s pessimism about Aurora is dropping, and expectations are a bit higher than for some of its peers. But there’s still a long way to go before the business is perceived as actually being solid.

In other words, don’t buy the stock just because other people are less down on it, as they could easily change their minds if earnings disappoint.

Alex Carchidi has positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Rebate Rewards

Level 2 Rebate

Deposit $2,000 and get $200 Rebate
$ 200 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $2,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $200 Rebate
Popular

Level 1 Rebate

Deposit $1,000 and get $100 Rebate
$ 100 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $1,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $100 Rebate

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

EASY QUALIFICATION & LOW ENTRY
NEW CLIENT REBATE OFFER
EARN UP TO $200 CASH REBATE
Act Fast - Promotion Ends In
Click Here To Get Started
EASY QUALIFICATION & LOW ENTRY
NEW CLIENT REBATE OFFER
EARN UP TO $200 CASH REBATE
Act Fast - Promotion Ends In
Click Here For More Info