Part of cannabis and investing
On today’s TSX Breakouts report, there are 23 stocks on the positive breakouts list (stocks with positive price momentum), and 32 stocks are on the negative breakouts list (stocks with negative price momentum).
Featured today is a stock that just surfaced on the positive breakouts list as the share price rallied on high volume yesterday – Aurora Cannabis Inc. (ACB-T). The stock price soared on speculation that a future deal may be announced with Coca-Cola Co. Coca-Cola issued the following statement, “We have no interest in marijuana or cannabis. Along with many others in the beverage industry, we are closely watching the growth of non-psychoactive CBD as an ingredient in functional wellness beverages around the world. The space is evolving quickly. No decisions have been made at this time.”
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Edmonton-based Aurora Cannabis is a licensed medical marijuana producer with operations in 18 countries.
A key objective for the company is growth, both organic and acquisition growth. The company has been quickly expanding its reach internationally through strategic global acquisitions. Just last week, the company announced it acquired Europe’s largest organic hemp producer, Agropro UAB.
In a news release, chief executive officer Terry Booth remarked, “Agropro’s position as Europe’s leading producer of premium organic hemp along with the significant and previously unutilized CBD production from the large quantities of currently discarded biomass, makes this an accretive acquisition and one that positions Aurora well to become a global leader in organic CBD-based wellness products.”
On July 25, Aurora completed the acquisition of Ontario-based MedReleaf.
The company has a strategic partnership and large ownership position in marijuana producer, The Green Organic Dutchman Holdings Ltd. (TGOD-T). In May, Aurora participated in TGOD’s initial public offering (IPO) and purchased over 33-million shares at an IPO price per share of $3.65.
The company’s fiscal year end is June 30. The company is expected to release its fourth-quarter fiscal 2018 financial results at the end of this month.
Dividend policy
Management is focused on growth, and as a result, the company currently does not pay its shareholders a dividend.
Analysts’ recommendations
The stock has recent research coverage from five analysts on the Street, of which, two analysts have ‘buy’ recommendations, one analyst has a ‘speculative buy’ recommendation(the analyst from Canaccord Genuity), one analyst has a ‘hold’ recommendation, and one analyst (from EVA Dimensions) has a ‘sell’ recommendation.
The firms providing recent research coverage on the stock are as follows in alphabetical order: Canaccord Genuity, Eight Capital, EVA Dimensions, GMP Securities, and PI Financial.
Revised recommendations
Earlier this month, Jason Zandberg, the analyst from PI Financial, increased his target price to $15 from $13.
In July, Martin Landry from GMP Securities lifted his target price to $9 from $8.
Financial forecasts
The consensus revenue estimates are $62-million for fiscal 2018, $459-million for fiscal 2019 and $948-million for fiscal 2020. The consensus EBITDA forecasts are $106-million in fiscal 2019 and $336-million in fiscal 2020. The Street is forecasting earnings per share of 2 cents in fiscal 2019, rising to 22 cents in the following fiscal year.
The stock has experienced positive top line revisions. For instance, three months ago, the consensus revenue estimates were $419-million for fiscal 2019 and $782-million for fiscal 2020. The consensus EBITDA estimates were $105-million in fiscal 2019 and $276-million in fiscal 2020. The earnings per share estimates were 6 cents for fiscal 2019 and 21 cents for fiscal 2020.
Valuation
The stock trades at a high valuation. According to Bloomberg, share of Aurora are trading at an enterprise value-to-EBITDA multiple of 28 times the fiscal 2020 consensus estimate.
The average 12-month target price is $11, implying the share price has 10 per cent upside potential over the next year. Individual target prices provided by four firms vary widely and are as follows in numerical order: two at $9 (suggesting the stock is currently overvalued), $11, and $15.
Insider transaction activity
Most recently, on Aug. 24, chairman Michael Singer exercised his options and sold the corresponding number of shares received (100,000), leaving 21,329 shares in his account.
On Aug. 17, chief operating officer Allan Cleiren purchased 39,600 shares at a price per share of $6.3593 for an account in which he has indirect ownership, increasing the portfolio’s position to 78,600 shares.
Chart watch
Year-to-date, the share price is up just 4 per cent. The two other marijuana stocks in the S&P/TSX composite health care sector are Aphria Inc. (APH-T) and Canopy Growth Corp. (WEED-T). Shares of Aphria have also rallied 4 per cent year-to-date. Canopy Growth (WEED-T) has outperformed its peers with a staggering 113 per cent year-to-date gain.
Marijuana stocks have seen their share prices soar in recent weeks. Over the past month, shares of Aurora Cannabis, Aphria, and Canopy Growth are up 54 per cent, 84 per cent and 43 per cent, respectively.
Looking at key resistance and support levels, Aurora’s share price has overhead resistance between $10 and $10.50, and after that around $12. Looking at the downside, there is strong technical support around $8, close to its 50-day moving average (at $7.81).
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.