Is Aurora Cannabis' Stock Overvalued Or Undervalued?

Aurora Cannabis Inc ACB shares have lagged the S&P 500 in 2021, generating a year-to-date total return loss of 14.9%.

Aurora’s stock has had a wild ride in 2021, but investors may be wondering whether there’s any value to be found in Aurora shares.

Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.

For comparison, the S&P 500’s PE is currently at about 28.7, nearly double its long-term average of 15.9. Aurora doesn’t currently have a PE ratio because the company is not profitable. In September, Aurora reported a net loss of about $550 million for fiscal year 2021.

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Growth: Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 20.6. Unfortunately, analysts are not expecting Aurora to turn a profit over the next four quarters. The current consensus earnings per share estimate for Aurora for fiscal 2022 is a per-share loss of 61 cents. Aurora’s health care sector peers are currently averaging a 16.2 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren't everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is about 0.9. Once again, without positive earnings, Aurora doesn’t have a positive PEG ratio to use as a valuation gauge.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is 3.12, well above its long-term average of 1.62. Aurora’s PS ratio is 7.4, more than double the S&P 500 average. However, Aurora's PS ratio is also down 63.9% over the past two years, suggesting the stock is priced at the low end of its historical valuation range.

Finally, Wall Street analysts see little value in Aurora stock over the next 12 months. The average analyst price target among the 12 analysts covering Aurora is $5.51, suggesting about 22.8% downside from current levels.

The Verdict: At today's price, Aurora stock appears to be overvalued based on a sampling of common fundamental valuation metrics.