Analysis – Aurora Cannabis Inc. (ACB)

I performed an analysis on ACB today to justify my previous decision on selling it in November 2017 using the analysis spreadsheet I created for Growth and Value Analysis.

First of all, let’s take a look at the summary of the financial statements:

• Although the revenue of ACB is growing dramatically, its operating margin, net profit margin, net income and earning per share (EPS) are still negative for the trailing twelve months (TTM). That means its revenue is not able to cover the operation and other expenses.
• The operating cash flow and free cash flow are also negative and increasing meaning ACB has been used up its cash on different activities. There are also risks with negative cash flow causing operation and financial difficulty.
• However, ACB has an excellent growth percentages on revenue (301.92%) and book value (66.51%) from the data I have.

Then we will determine the acceptable price from the growth and value analysis:

• I assume the current price is $12.5 Cad per share as it fluctuates around that price today.
• Since my growth and value analysis both require the EPS growth rate from different time periods, both results are non applicable because the EPS growth rates are all negative.
• We will have to estimate the price from the historical data.
  • The reasonable historical price average is about $3.66 per share which is much lower than the current price of $12.5 per share.
  • The reasonable historical price from the Price per Book value is approximately $9.66 per share which is also lower than the current price.

From the analysis above, I conclude that ACB is not a good long term investing equity at this moment. It is not growing fast enough to maintain positive net income, EPS and high growth rate. The current price is also overvalued determined from the growth and value analysis. It has higher risk than opportunity of generating positive return for investors until it operates more stable after the Act of Cannabis is passed.

Since I am a more conservative investor and I would like to sleep well every night, I would not invest into ACB until I see a better performance financially. This analysis also justified the correct decision I made of selling ACB in November 2017.

Going forward, I will generate more posts on explaining the spreadsheet I created and instruction on how each item on this spreadsheet be utilized.