On September 11, investors were disappointed by one of the most highly anticipated companies’ earnings in the cannabis sector—Aurora Cannabis (ACB). The stock took a big hit, dropping as much as 9% during the day on September 12. For more analysis, see Aurora Cannabis: Are Its Q4 Results Good or Bad News?
Why did Aurora Cannabis stock fall?
Missing expectations is one of the key reasons for a stock falling after earnings. The market is forward-looking, and it builds its expectations for a company into the current stock price. As new information comes in, the stock either appreciates or falls, depending on the nature of the information.
Aurora Cannabis missed its own guidance for net revenues. The company was expecting to see about 100 million to 107 million Canadian dollars for Q4 in net revenue, but it delivered net revenue of about 99 million. That’s almost 7% lower than the upper bound of the company’s guided range. On its earnings call, the company noted that it missed revenue due to non-core cannabis business. Aurora elaborated that the non-core cannabis business includes ancillary companies conducting patient counseling and analytical testing.
What about profitability?
Cannabis companies such as Canopy Growth (WEED)(CGC) and Aurora Cannabis have been under pressure to reach profitability. Aurora Cannabis now expects to take longer to become profitable, according to this Bloomberg report.
The cannabis sector hasn’t been favorable. For example, in Ontario, retail cannabis outlets have experienced delays. This was also one of the reasons the company cited for pushing back its profitability expectations to 2020. While the recreational side takes a hit, there’s steady progress in discussions about the medical cannabis sector, especially in the US. See Medical Cannabis: A Hot Topic at Events Across the World. On the other hand, DEA is also doing its bit to boost the research on cannabis.
PI Financial cuts its price target
Following the company’s earnings release, the brokerage firm PI Financial cut its price target to 12 Canadian dollars from 15 Canadian dollars. The firm, however, maintained a “buy” rating on Aurora Cannabis. This rating is in line with the consensus “buy” recommendation from 14 analysts.
The cannabis industry saw another casualty this week with a price target cut for CannTrust. Brokerage Firm Eight Capital removed its price target for the company due to regulatory concerns. While these companies disappoint, stock expert Jim Cramer prefers Cronos Group (CRON) and Aphria (APHA).