The shares of Aurora Cannabis (NAS: ACB, 30-year Financials) are assessed as a potential value trap according to the GuruFocus Value calculation. GuruFocus Value is GuruFocus’ estimate of the fair value at which the stock should trade. It is calculated based on the historical multiples at which the stock was traded, past business growth and analyst estimates of future business development. If a stock is well above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is well below the GF Value Line, its future return will likely be higher. With a current price of $ 10.05 per share and a market capitalization of $ 2 billion, Aurora Cannabis’ stock is considered a potential value trap. The GF value for Aurora Cannabis is shown in the table below.
The reason we believe Aurora Cannabis stock might be a value trap is because its Piotroski F-Score is only 3 out of a total of 9 on profitability, funding and efficiency. When this happens, investors should look past the company’s low valuation and make sure it doesn’t have long-term risks. To learn more about how the Piotroski F-Score measures a company’s business trend, please go here. Additionally, Aurora Cannabis has an Altman Z-Score of -2.33, suggesting that the company’s financial condition is in dire straits and implying a higher risk of bankruptcy. An Altman Z-Score above 2.99 would be better, which indicates safe financial conditions. To learn more about how the Z-Score measures the company’s financial risk, please go here.
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Companies with little financial strength present investors with a high risk of permanent capital loss. To avoid permanent loss of capital, an investor must do their research and verify a company’s financial strength before making a decision to buy stocks. Both a company’s cash-to-debt ratio and interest coverage are great ways to understand its financial strength. Aurora Cannabis has a cash-to-debt ratio of 0.99, which is in the mid-range for companies in the drug manufacturing industry. The total financial strength of Aurora Cannabis is 4 out of 10, which suggests that Aurora Cannabis’ financial strength is low. Here are Aurora Cannabis’ debts and cash over the past several years:
Investing in profitable companies carries less risk, especially in companies that have 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 for 1 year over the past 10 years. For the past 12 months, the company had sales of $ 204.4 million and a loss of $ 16.359 per share. Its operating margin of -153.11% worse than 84% of companies in the drug manufacturing industry. Overall, GuruFocus rates Aurora Cannabis’ profitability as poor. These are Aurora Cannabis’ revenues and net revenues over the past few years:
One of the most important factors in evaluating a company is growth. According to GuruFocus Research, long-term stock performance correlates closely with growth. Companies that grow faster create more value for shareholders, especially when that growth is profitable. Aurora Cannabis’ average annual revenue growth is 54.8%, better than 93% of companies in the drug manufacturing industry. The 3-year average EBITDA growth is -272.1%, which is in the bottom 10% of companies in the drug manufacturing industry.
Another way to determine a company’s profitability is to compare the return on invested capital to the weighted average cost of capital. The return on investment (ROIC) measures how well a company generates cash flow in relation to the capital invested in its business. The weighted average cost of capital (WACC) is the average rate a company must pay to all of its securityholders to fund its assets. When the ROIC is higher than the WACC, it means the company is creating value for shareholders. For the past 12 months, the Aurora Cannabis return on investment is -14.21 and the cost of capital is 20.10. The historical comparison between ROIC and WACC from Aurora Cannabis is shown below:
In conclusion, Aurora Cannabis (NAS: ACB, 30-Year Financials) stock is believed to be a potential value trap. The company’s financial condition is poor and profitability is poor. Its growth ranks in the bottom 10% of companies in the drug manufacturing industry. To find out more about Aurora Cannabis stock, check out 30 year financials here.
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