Shares of Aurora Cannabis Inc. fell again on Friday, after BMO Capital analyst Tamy Chen turned bearish on the Canada-based cannabis company, saying she is “unable to justify” current valuations.
Chen cut her rating to underperform from market perform, while revising her target on the stock
C$9 from C$7.
That makes Aurora the only cannabis stock Chen is bearish on, as she has market perform ratings on all the other cannabis companies she covers.
She said the result of the U.S. election introduced “exceptional volatility” in cannabis stocks, with those she covers rallying between 50% and 100%, and with Aurora’s stock more than doubling. Many expect President-elect Joe Biden to push for reforms that will allow marijuana companies to access U.S. banks and capital markets.
Aurora’s U.S.-listed stock dropped 2.8% in afternoon trading Friday, putting in on track to suffer a third-straight loss.
The stock had soared as much as 146.9%, from the Nov. 2 close of $4.73 to a four-month closing high of $11.68 on Nov. 30, before paring some gains. At current prices, the stock is still up 1000% since Nov. 2.
Chen said that while Aurora has improved its balance sheet, by taking advantage of share price gains to sell stock, which is why she lifted her price target, her view of the company’s business “has not changed.” That leaves the stock’s valuation “out of line with fundamentals,” she said.
“We agree with [Aurora’s] actions so far, but we are unable to justify a higher multiple as [Aurora] attempts a turnaround that may or may not be successful,” Chen wrote in a note to clients.
She said that from her sensitivity analysis on Aurora’s premium strategy, she concluded that “it could take up to three years for [Aurora] to achieve sustainable profitability.”
Here are the other cannabis stocks Chen covers, all of which are rated market perform: Aphria Inc.