Is There An Opportunity With Aurora Cannabis Inc.'s (TSE:ACB) 37% Undervaluation?

Simply Wall St.12-19

Key Insights Aurora Cannabis' estimated fair value is CA$9.65 based on 2 Stage Free Cash Flow to Equity Aurora Cannabis' CA$6.11 share price signals that it might be 37% undervalued Analyst ...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nIs There An Opportunity With Aurora Cannabis Inc.'s (TSE:ACB) 37% Undervaluation?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-12-19 21:32 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/opportunity-aurora-cannabis-inc-tse-133212024.html><strong>Simply Wall St.</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Key Insights\n\n Aurora Cannabis' estimated fair value is CA$9.65 based on 2 Stage Free Cash Flow to Equity \n Aurora Cannabis' CA$6.11 share price signals that it might be 37% undervalued \n  Analyst ...</p>\n\n<a href=\"https://finance.yahoo.com/news/opportunity-aurora-cannabis-inc-tse-133212024.html\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4090","symbol_name":"商品化工","start_time":0,"source_url":"https://finance.yahoo.com/news/opportunity-aurora-cannabis-inc-tse-133212024.html","article_id":"2492744361","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/G9x4galCm7QFXQpvTBFfCA--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/da10dd165ba4e36a18a84671f85444ff"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2492744361","pubTimestamp":1734615132,"columns":[],"sourceInfo":{"source_id":"yahoofinance","name":"雅虎金融"},"weMediaInfo":null,"summary":"Aurora Cannabis' estimated fair value is CA$9.65 based on 2 Stage Free Cash Flow to Equity. Aurora Cannabis' CA$6.11 share price signals that it might be 37% undervalued. Analyst price target for ACB is CA$8.75 which is 9.3% below our fair value estimate. Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Aurora Cannabis Inc.  as an investment opportunity by projecting its future cash flows and then discounting them to today's value. One way to achieve this is by employing the Discounted Cash Flow  model. Before you think you won't be able to understand it, just read on!Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4090":"商品化工","TSE":"Trinseo","BK4007":"制药","BK4100":"有线和卫星","BK4211":"区域性银行","ACB":"奥罗拉大麻公司","TV":"墨西哥电视","FCF":"第一联邦金融","DCF":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","BK4557":"大麻股"},"translate_title":"Aurora Cannabis Inc.(TSE：ACB)估值被低估37%，是否存在机会？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ACB":1,"DCF":1,"FCF":1,"TSE":1,"TV":1},"content_text":"Key Insights\n\n Aurora Cannabis' estimated fair value is CA$9.65 based on 2 Stage Free Cash Flow to Equity \n Aurora Cannabis' CA$6.11 share price signals that it might be 37% undervalued \n  Analyst price target for ACB is CA$8.75 which is 9.3% below our fair value estimate \n\n Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Aurora Cannabis Inc. (TSE:ACB) as an investment opportunity by projecting its future cash flows and then discounting them to today's value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine. \n Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. \n See our latest analysis for Aurora Cannabis \n Step By Step Through The Calculation \n We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. \n A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we discount the value of these future cash flows to their estimated value in today's dollars: \n 10-year free cash flow (FCF) forecast \n\n\n\n\n2025\n2026\n2027\n2028\n2029\n2030\n2031\n2032\n2033\n2034\n\n\n Levered FCF (CA$, Millions) \n-CA$1.90m\nCA$13.1m\nCA$15.2m\nCA$16.9m\nCA$18.2m\nCA$19.4m\nCA$20.4m\nCA$21.2m\nCA$22.0m\nCA$22.7m\n\n\nGrowth Rate Estimate Source\nAnalyst x4\nAnalyst x3\nAnalyst x1\nEst @ 10.57%\nEst @ 8.08%\nEst @ 6.34%\nEst @ 5.12%\nEst @ 4.26%\nEst @ 3.67%\nEst @ 3.25%\n\n\n Present Value (CA$, Millions) Discounted @ 5.6% \n-CA$1.8\nCA$11.7\nCA$13.0\nCA$13.6\nCA$13.9\nCA$14.0\nCA$13.9\nCA$13.8\nCA$13.5\nCA$13.2\n\n\n\n(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = CA$119m\n After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.3%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 5.6%. \nTerminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = CA$23m× (1 + 2.3%) ÷ (5.6%– 2.3%) = CA$705m\nPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= CA$705m÷ ( 1 + 5.6%)10= CA$410m\n The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is CA$529m. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of CA$6.1, the company appears quite undervalued at a 37% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. \n\n\n\n  TSX:ACB Discounted Cash Flow December 19th 2024\n \n\n The Assumptions \n We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Aurora Cannabis as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 5.6%, which is based on a levered beta of 0.800. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. \nSWOT Analysis for Aurora Cannabis\n\n\nStrength\n\nDebt is well covered by earnings.\n\n\nBalance sheet summary for ACB.\n\n\n\nWeakness\n\nShareholders have been diluted in the past year.\n\n\n\nOpportunity\n\nForecast to reduce losses next year.\n\n\nGood value based on P/S ratio and estimated fair value.\n\n\n\nThreat\n\nDebt is not well covered by operating cash flow.\n\n\nHas less than 3 years of cash runway based on current free cash flow.\n\n\nIs ACB well equipped to handle threats?\n\n\n\n Next Steps: \n Although the valuation of a company is important, it shouldn't be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. Why is the intrinsic value higher than the current share price? For Aurora Cannabis, there are three pertinent elements you should assess: \n\n Risks: Every company has them, and we've spotted   1 warning sign for Aurora Cannabis   you should know about. \nFuture Earnings: How does ACB's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.\n Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! \n\n PS. Simply Wall St updates its DCF calculation for every Canadian stock every day, so if you want to find the intrinsic value of any other stock just search here.\nHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2492744361"}