Why Shares of Aurora Cannabis Were Smoking Hot
What’s going on with Aurora stock
On the second day of trading this week, shares of Aurora Cannabis were smoking hot. On Tuesday, an analyst’s more positive view of the Canadian marijuana company’s prospects drove shares of Aurora Cannabis (NASDAQ:ACB) to rise more than 5%.
Why we care
Ironically, the most recent research from Stifel (NYSE:SF) mainly focuses on one bad habit of marijuana firms. That habit, that many investors see as a negative, is a secondary share offering. Analyst W. Andrew Carter gave coverage of Aurora Cannabis‘s latest fundraising effort. It raised gross proceeds of $173 million by issuing units consisting of common shares and warrants as his reasoning for his decision.
According to Carter, Stifel is a hold now, up from his prior sell recommendation. His new price target is $2.15 CAD ($1.71 USD) per share. That’s less than 6% above the current level of Aurora’s U.S.-listed stock.
Despite Carter’s concerns about the company, he stated in his most recent research that the share dilution caused by the unit issuance is minor, and the company benefits from greater liquidity.
Like many other marijuana firms (particularly those in Canada), Aurora is frequently unprofitable and has difficulties with cash flow. So why are Canadian pot companies having difficulty competing against their American counterparts when the market in the United States isn’t even federally legal? First, Canada is a far smaller market than the United States. Second, regulatory delays have kept cannabis stores from opening in several provinces.
Carter is more optimistic than investors were when the firm announced the unit flotation. Following that news, Aurora stock dropped 5%. The drop was primarily due to concerns about stock dilution and worries that the analyst feels are irrelevant.
The upgrade is unquestionably beneficial to Aurora, and the resulting stock price rise is encouraging. However, given that Aurora’s fundamentals have historically been poor, investors will need to see a lot more from the business to be entirely enthused about the stock.