The year is a more than a month old, but Aurora Cannabis (NASDAQ: ACB) is already one of the hottest stocks to own in 2025. As of Feb. 11, the pot stock has soared more than 50% since the year began -- and that rally began only a few days ago.
Shares of Aurora got a big boost after the company posted its latest earnings numbers showing a strong profit. Could this be a turning point for Aurora after years of disappointment? Has the stock finally become a good buy?
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Aurora's sales take off in Q3
On Feb. 5, Aurora Cannabis reported its fiscal third-quarter results for the period ended Dec. 31. The cannabis company reported impressive year-over-year growth, with sales rising by 37% to 88.2 million Canadian dollars ($61.7 million). This is an acceleration from the previous quarter, when its sales growth rate was 29%.
This is great news for a company that has struggled to generate much growth. In its home Canadian market, competition is fierce. Not only are margins extremely barrow, but it's also difficult to increase market share due to heavy restrictions on marketing and an abundance of cannabis producers.
To expand, Aurora has been focusing on selling medical marijuana products internationally, where it can sell at higher prices and produce better margins for the business. It was the international medical market that generated solid growth last quarter for Aurora, more than doubling from CA$19.2 million to CA$40.9 million. As that happened, the company's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also rose significantly, from CA$5.5 million a year ago to CA$23.1 million this past quarter.
The company still faces risks, however
Aurora's results were encouraging, but that doesn't necessarily mean it's going to be smooth sailing in the future. The company's earnings numbers were strong last quarter, and Aurora posted a profit of CA$31.3 million compared with a net loss of CA$18.1 million a year earlier. However, that profit was heavily boosted by gains on its biological assets (that added CA$31.6 million to gross profit).
Earnings numbers for cannabis companies can fluctuate significantly and the company is going in the right direction. The big question is whether it can remain in the black as it continues to expand and without big one-time gains boosting the bottom line in the future.
Although the business had a good deal of growth last quarter, cannabis investors have seen this situation play out in the past, where new market opportunities lead to surging sales initially, only to slow drastically later on. As other Canadian cannabis companies see the growth Aurora is generating internationally, it may only be a matter of time before it faces more competition in those markets as well.
Aurora's business is showing some signs of progress, and it has come a long way over the years in becoming less dependent on the Canadian consumer cannabis market. However, whether investors decide to take a chance on the stock will ultimately come down to their risk tolerance.
Is Aurora Cannabis stock finally worth taking a chance on?
During the past five years, Aurora shares have plummeted 97% in value. The business does look better, and it's arguably a safer investment than it was five years ago. But that isn't saying much, given how badly it has performed during that stretch.
This is a highly volatile stock which has headed almost exclusively in the wrong direction. The danger is that although it's doing well now, it could take just one bad quarter or negative development in the cannabis industry to undo this recent rally. The shares could be a good option if you're a contrarian investor with a high risk tolerance. But for the vast majority of investors, this is still a stock that you'll likely be better off simply watching rather than buying.
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David Jagielski 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.
