It’s been quite a week for shares of Aurora Cannabis (ACB). In just the past few days of trading, the stock was trading for just over $5 per share and has been as high as $19.  Currently the stock is trading just below $16.

Investors might be curious as to what is causing so much volatility.

ACB initiated a 12-for-1 reverse stock split last week after facing a delisting warning from the New York Stock Exchange, due to their share price being below $1 per share. 

Then on May 14th, ACB posted its third-quarter earnings.  They saw revenues jumping 35% from their previous quarter, which caused their shares to have a major rally.

On Monday of this week Ladenburg Thalmann reiterated their buy rating on shares of Aurora Cannabis but analyst Glenn Mattson lowered his price target to $18 per share. The firm originally had a $36 split-adjusted price target prior to the update. 

Mattson said, “We think ACB can become a solid cash flow generator simply from the Canadian operations and, with a strong market position in Canada, the company can create significant value from here based on this one market. We do think that it will look to expand into the U.S. but not until federal legality is more clear.” 

Short-sellers have been capitalizing on the downtrend in ACB for some time now but were caught by surprise with this earnings release.  As a result, short-sellers covering their trades have played a large part in this dramatic rally.

Next quarter should ultimately determine the future for ACB.  We will be watching closely for further write-downs along with how efficient that is in terms of SG&A cost-cutting. ACB has promised a profitable Q1 2021 quarter due to their debt covenants so this really needs to happen if ACB wants to maintain shareholder confidence.

(Disclosure: The author is long ACB)

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ACB shares were trading at $15.42 per share on Tuesday afternoon, down $1.68 (-9.82%). Year-to-date, ACB has declined -40.51%, versus a -7.72% rise in the benchmark S&P 500 index during the same period.

About the Author: Aaron Missere

Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...

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