Aurora Cannabis stock has tripled since the Canadian pot producer reported better-than-expected March quarter sales. But it is tumbling today.

Jefferies analyst Owen Bennett says in a Friday note that Aurora stock (ticker: ACB) has become one of the most expensive Canadian cannabis stocks while still being faced with big challenges. So Bennett downgraded Aurora shares to Underperform from a Hold, and says they’re worth no more than 10 bucks.

“We think near-term sales and [gross margin] headwinds aren’t fully appreciated,” writes Bennett. “[W]e see give back in the price over the next few quarters as likely.”

Aurora stock is down 9.3% to $15.78 in Friday morning trading.

Barron’s asked Aurora about Bennett’s concerns, but got no immediate reply.

After a more than a year of steep losses and the resignation of founder Terry Booth, Aurora shares had sunk to $5.30 this month, down 95% from a $150 peak in 2018. But the company then reported March sales of 76 million Canadian dollars (or US$54 million) and its executives vowed that it would reach positive cash flow by the September quarter. March quarter cash flows were negative C$46 million, using the company’s preferred measure of “adjusted” earnings before interest, taxes, depreciation and amortization.

That news, and a deal this week to enter the U.S. market by acquiring a small seller of products that contain the soothing ingredient CBD, galvanized Aurora shares and lifted the company’s enterprise valuation to $1.65 billion. That’s too generous, says Bennett.

Aurora’s enterprise value is now more than 7 times the sales that Jefferies predicts for the next 12 months. That makes it the third-most-expensive Canadian pot stock, after Canopy Growth (CGC) and Cronos Group (CRON), which each go for about 9 times forward sales. Those other firms have strong balance sheets and the backing of large consumer-packaged-goods shareholders. The alcoholic beverage leader Constellation Brands (STZ) is Canopy’s big shareholder, while Cronoss has tobacco giant Altria Group (MO) at its back. Aurora struggles under debt and has had to mothball ambitious construction projects.

Analyst Bennett wasn’t even that impressed with March results. He notes that Aurora introduced a new nonstandard financial measure for its gross margins that omits depreciation and amortization charges. Counted conventionally, the latest quarter’s gross margins were 44%—far below the 56% levels that Aurora enjoyed last year.

Aurora reports the standard gross margin, along with the new “adjusted” measure, but Bennett fears that the retail investors that follow Aurora stock might be confused into thinking that the company’s profits are better than they are. The analyst confesses that he was confused when March quarter results were announced.

The gross margins indicate that pricing is under pressure in Canada’s recreational pot market, says Bennett.

He’s also unimpressed with Aurora’s deal to buy the U.S. CBD seller Reliva . Aurora shares surged on the announcement, but he estimates that the company is paying 8.5 times Reliva’s trailing-12-months sales, including potential earn-out payments. By comparison, the stock of CBD leader Charlotte’s Web Holdings (CWEB) trades for 5.3 times trailing-12-months sales. Other CBD stocks go for 1 to 2 times sales.

Aurora’s debt covenants require it to deliver positive Ebitda by the September quarter. Bennett isn’t optimistic, in light of the company’s margin pressures and recent negative cash flows. He’s skeptical of management’s claim that Aurora can avoid dilutive stock sales, given the C$500 million in debt already on its balance sheet.

Oher analysts have raised their ratings on the stock, leaving the average target price among brokers tallied by research platform Sentieo at $17.40. Jefferies thinks Aurora should trade at 5 times the sales he expects for the next 12 months. His price target is $10.

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