Aurora Cannabis (NYSE:ACB) ranks as the biggest cannabis producer in the world when it comes to production capacity. It claims the highest market share in the important German medical marijuana market and the second-highest share in the Canadian adult-use recreational market. Aurora’s market cap of $4.8 billion puts it in a solid No. 2 spot among pot stocks.
But is Aurora the best marijuana stock on the market? Not hardly. There are several better picks, including one of Aurora’s peers that arguably hasn’t received as much attention as it deserves. Forget Aurora Cannabis, here are three reasons why…
Aphria (NYSE:APHA) is a better marijuana stock.
1. It’s already profitable
Aurora posted yet another big loss in its fiscal 2019 fourth-quarter results. The company says that it’s close to achieving positive earnings before interest, taxes, depreciation, and amortization (EBITDA), but positive net income is still likely at least a year and a half away.
Aphria, on the other hand, reported a nice profit in its latest quarterly update. Sure, the company’s solid bottom-line performance stemmed from its acquisition earlier this year of German medical cannabis and pharmaceutical distributor CC Pharma. But a profit is a profit. And Aphria is profitable without relying on one-off adjustments or revisions.
Profitability comes with more than just bragging rights. Because Aurora continues to lose money, it’s still draining its cash stockpile to fund operations. Sometime next year, the company will be forced to raise more capital. That probably means more dilution is on the way. Aphria, however, isn’t likely to have to take that route. This is a huge advantage for Aphria that could cause these two stocks to move in different directions in the not-too-distant future.
2. It’s a better bargain than Aurora
Another reason why Aphria is a better marijuana stock than Aurora is its valuation. We can’t compare the companies on earnings-based valuation metrics because Aurora isn’t profitable yet. However, we can look at the two cannabis producers’ trailing-12-month price-to-sales (P/S) ratios.
Aphria’s P/S ratio is less than one-third of Aurora’s P/S ratio, according to YCharts. Based on this common valuation metric, Aphria is dirt cheap in comparison to its larger rival. One drawback to using trailing-12-month P/S ratios, though, is that they don’t address the prospects of future growth. But using a forward-looking P/S ratio makes Aphria look even more attractive: Aurora’s forward P/S ratio is more than four times greater than Aphria’s forward multiple.
I sometimes use another way of comparing the valuations of the stocks of cannabis producers by looking at their market caps divided by their projected production capacities. Again, Aphria comes out way ahead of Aurora based on this “best bang-for-the-buck” approach…
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