The TSX index provides investors with exposure to a wide range of stocks across various sectors, but only a select few have the potential to outperform the market over time. It is critical to identify companies with weak fundamentals and avoid investing in them.
One such stock on the TSX that is considered to have weak fundamentals is a licensed marijuana producer. Valued at a market capitalization of $445 million, this stock has experienced a significant decline of 99.5% from its all-time highs. There are concerns about the stock’s ability to recover in the coming years.
Aurora Cannabis, the licensed marijuana producer, saw a significant rally in its stock price between 2014 and 2018 following the legalization of recreational marijuana in Canada. However, since legalization, the company and its peers have faced challenges such as competition from the illegal market, slow retail rollout, overvalued acquisitions, and increased competition, leading to lower profit margins and cash burn rates.
Despite efforts to improve profitability, including scaling back operations, the company reported a net loss in the last quarter. With declining sales and profitability, there are concerns about its ability to generate consistent profits in the future. Additionally, the potential opportunity in Germany’s marijuana market may not necessarily translate to improved financial performance for the company.
Overall, Aurora Cannabis is considered a high-risk investment with limited upside potential. Investors may want to explore other TSX-listed stocks that offer a more attractive risk-reward balance.
