What happened
Shares of Aurora Cannabis (NASDAQ: ACB) wafted nicely higher on the second day of the trading week. The Canadian marijuana company's shares drifted more than 5% skyward on Tuesday, on an analyst's more bullish take on its prospects.
So what
Interestingly, the latest analysis from Stifel is based largely on one habit of marijuana companies considered by many investors to be negative: a secondary share issue. Analyst W. Andrew Carter cited Aurora's latest financing effort, in which it raised gross proceeds of $173 million from a flotation of units consisting of common shares and warrants, as a key reason for his upgrade.
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Carter now believes that Stifel is a hold, up from his previous evaluation of sell. His new price target is 2.15 Canadian dollars ($1.71) per share. That's less than 6% above the current level of Aurora's U.S.-listed stock.
Although Carter still has concerns about Aurora's business, he wrote in his latest research note that the share dilution resulting from the units issuance is minimal, and the gain in liquidity is a plus for the company. Like many other marijuana companies (particularly those in Canada), Aurora is habitually unprofitable and frequently struggles with cash flow difficulties.
Now what
Carter is more bullish than investors were when the units flotation was announced. In the wake of that news, Aurora's stock took a 5% hit, mostly on the stock dilution concerns that the analyst believes are relatively immaterial.
The recommendation upgrade is indisputably positive for Aurora, and the resulting stock price bump is encouraging for sure. But given Aurora's historically poor fundamentals, investors will need to see a lot more from the company for them to really get excited about the stock.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
