Aurora Cannabis (NYSE: ACB) was one of the biggest names in the cannabis market. However, in the past 12 months, stocks have fallen 89% due to a number of concerns, such as the company’s continuing lack of profitability and excessive goodwill on its balance sheet.
Although Aurora’s long-term financial health remains a concern, investors have been impressed by the company’s better-than-expected results from the company’s third quarter earnings report. Aurora’s stocks eventually rose in response to the news, with many investors wondering if the once-big cannabis giant is on the rise again.
Let’s take a closer look at whether Aurora Cannabis is really about to make a comeback, or whether this new excitement needs to be checked out a bit.
When you compare this quarter’s results with those of just three months ago, the difference is immediately apparent. While Aurora ended up reporting a staggering C $ 1.3 billion net loss in its second quarter financial results, that figure improved dramatically in the third quarter, for a net loss of 137.4 CA $ million.
If you are wondering how this is possible, the answer is that most of the loss of C $ 1.3 billion is due to one-time goodwill and an adjustment to intangible assets, which reached 920.9 millions of Canadian dollars. Even if we factor in these one-time charges, Aurora’s financial numbers still show signs of improvement.
Operating losses improved from C $ 119.6 million in the last quarter to C $ 83.6 million. Given that Aurora announced major layoffs earlier this year to cut costs, this is not a surprising change, but it is still good news for shareholders who are hoping for a return. Net sales also improved significantly from the last quarter, increasing 34.8% from C $ 56 million to C $ 75.5 million. It’s also a little better than the $ 66.8 million some Wall Street analysts expected this quarter.
Aurora’s cash position is fragile, but manageable in the short term if its other financial parameters continue to improve. Its CA $ 230.2 million in cash represents just under six months of funding if the net losses do not change. Aurora also has the option of raising an additional C $ 352 million in equity financing if it so requires.
With things that seem to be getting better for Aurora, does that mean now is the time to reinstate this stock in your portfolio? Well not really. While it’s easy to view this quarter’s net loss as a major improvement over three months ago, Aurora is still far from profitable.
Other cannabis companies outperform Aurora both in terms of sales and profitability. To illustrate, Green Thumb Industries (OTC: GTBIF), a U.S.-based cannabis company, announced first quarter financial results earlier this month, which put Aurora to shame. Green Thumb announced quarterly revenue of $ 102.6 million, while net losses were only $ 4.2 million.
Aurora has already suffered nearly C $ 1 billion in depreciation earlier this year, and investors are not expected to cancel the possibility of further impairments in the future. Aurora continues to have CAD $ 2.9 billion of goodwill and intangible assets on its balance sheet, which is one of the highest in the cannabis industry.
Aurora’s total market capitalization is only C $ 1.7 billion, and another major adjustment to goodwill could easily wipe out a massive part of that, sending stocks plunging. In comparison, Green Thumb Industries has a market capitalization of about $ 1.9 billion, while its goodwill and intangible assets total just under $ 800 million.
While Aurora’s most recent financial results are definitely an improvement, the business has still not come out of the woods financially. With Aurora still posting significant losses, a disappointing and unexpected quarter could prove disastrous for the company’s already precarious cash position.
Add to that the huge figure of goodwill that is still looming on Aurora’s balance sheet, and investors still have a lot to fear with this Canadian cannabis giant. While there are certainly some interesting pot stocks to invest in right now, especially because many of them are trading at high discounts, it might be best to hold Aurora for now.