Investors use valuation multiples as a gauge to determine the value of a stock. Investors closely track these multiples to make entry and exit decisions on stocks.
Let’s look at how Aurora Cannabis’s (ACB) valuation compares to its peers’.
Aurora versus peers
In the chart above, we’ve compared Aurora Cannabis’s EV-to-EBITDA (enterprise value-to-EBITDA) to those of its peers Canopy Growth (WEED), Tilray (TLRY), and Aphria (APHA). Aurora Cannabis’s most recent valuation multiple is trading at a discount to its peers (HMMJ) Canopy Growth and Tilray.
On January 18, Canopy Growth was trading at an EV-to-EBITDA multiple of 110.9x, Aurora Cannabis was trading at a multiple of 34.2x, and Tilray was trading at a multiple of ~700x. On the other hand, Aphria (APHA) was trading at a discount of 12x to the peer median of 17.7x on the day.
The above valuation multiple takes into account a company’s current EV over its forward EBITDA estimate. Increased leverage makes a stock risky, so it demands a higher return, which will eventually lead to a lower valuation multiple, indicating that investors are pricing in the risk of leverage through higher returns.
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