Yahoo Finance Aurora Cannabis Stock Appears To Be Possible Value Trap
- By GF Value
The stock of Aurora Cannabis (NAS:ACB, 30-year Financials) is estimated to be possible value trap, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $10.05 per share and the market cap of $2 billion, Aurora Cannabis stock is believed to be possible value trap. GF Value for Aurora Cannabis is shown in the chart below.
The reason we think that Aurora Cannabis stock might be a value trap is because its Piotroski F-score is only 3, out of the total of 9. Such a low Piotroski F-score indicates the company is getting worse in multiple aspects in the areas of profitability, funding and efficiency. In this case, investors should look beyond the low valuation of the company and make sure it has no long-term risks. To learn more about how the Piotroski F-score measures the business trend of a company, please go here. Furthermore, Aurora Cannabis has an Altman Z-score of -2.33, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Aurora Cannabis has a cash-to-debt ratio of 0.99, which which ranks in the middle range of the companies in Drug Manufacturers industry. The overall financial strength of Aurora Cannabis is 4 out of 10, which indicates that the financial strength of Aurora Cannabis is poor. This is the debt and cash of Aurora Cannabis over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Aurora Cannabis has been profitable 1 years over the past 10 years. During the past 12 months, the company had revenues of $204.4 million and loss of $16.359 a share. Its operating margin of -153.11% worse than 84% of the companies in Drug Manufacturers industry. Overall, GuruFocus ranks Aurora Cannabis's profitability as poor. This is the revenue and net income of Aurora Cannabis over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Aurora Cannabis is 54.8%, which ranks better than 93% of the companies in Drug Manufacturers industry. The 3-year average EBITDA growth is -272.1%, which ranks in the bottom 10% of the companies in Drug Manufacturers industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Aurora Cannabis's return on invested capital is -14.21, and its cost of capital is 20.10. The historical ROIC vs WACC comparison of Aurora Cannabis is shown below:
In conclusion, the stock of Aurora Cannabis (NAS:ACB, 30-year Financials) is believed to be possible value trap. The company's financial condition is poor and its profitability is poor. Its growth ranks in the bottom 10% of the companies in Drug Manufacturers industry. To learn more about Aurora Cannabis stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
