Aurora Cannabis (NYSE: ACB ) continues its downtrend and traded recently at a 52-week low. The company’s second-quarter 2020 results did little to inspire investors. As markets continue to correct with heavy selling pressure, Aurora stock may visit the $1 level soon.

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Aurora reported net revenue of 66.6 million CAD, which excluded provisions of 10.6 million CAD. Still, net cannabis revenue is in line with its recent guidance. Interim CEO Michael Singer acknowledged growth in its core medical and consumer business is simply modest. The successful launch of Cannabis 2.0 products across Canada is the only bright spot in the quarter.

The bad news for investors holding Aurora stock is that the hype in the sector is gone. Markets are preoccupied with the coronavirus from China spreading worldwide. The global economic slowdown will force investors to recalibrate their valuation for speculative investments in the cannabis sector.

So, this suggests that the slight production cost per gram of 88 cents CAD against the average net selling price of medical cannabis stabilizing at 7.99 CAD is a small improvement.

Growth Catalysts Ahead

Previously, Aurora touted its focus on Cannabis 2.0 would drive growth. But on its conference call, the company said that 2.0 would develop slowly. It said that the good news is that it is “managing the business accordingly and [the company feels] very confident about our prospects.”

Aurora’s measured approach in the 2.0 launch lowers operational execution risks. Yet the bigger question is the run rate for edibles. Gummy demand is unknown and needs strong consumer interest to excite Aurora investors into holding shares. The company said that “the gummies, they are selling out as soon as we can get them to the provinces, provinces are ordering in a very, let’s say a prudent way I think. They’d rather stock out as opposed to being overstocked.”

If consumer interest improves, Aurora has the capacity to ramp up output if needed. Management may reasonably achieve 20% of its sales coming from 2.0 products in the next quarter.

Investors are not buying into the promised growth catalysts ahead. International medical sales fell from 5 million CAD to just 1.8 million CAD in Q2. Aurora blamed a permitting issue hurting its sales in Europe. For example, growth in Germany will grow slower than expected. Still, its recent European Union Good Manufacturing Practice certification at its Aurora River facility will have a run rate of nearly 30,000 kilograms a year.

Cost Reductions

Aurora cut staff and halted capital projects to slow its cash burn rate. Investors may assume it cut IT, human resources and marketing staff to adjust for the lower demand. It will continue to evaluate the Canadian cannabis in medical and consumer markets.

The company did not give a clear indication of when it will report positive earnings before interest, taxes, depreciation and amortization (EBITDA). But as opportunities emerge and the company grows its revenue, it will balance the costs accordingly.

My Valuation on Aurora Stock

There are 17 analysts who have a price target on Aurora Cannabis stock, and they have an average price target of $1.93. Conversely, Simply Wall St cautioned that the company has less than one year of cash remaining. Based on its future cash flow, the stock is undervalued by 7.7% and has a fair value of $1.45.

If investors assume the following metrics in a 5-year discounted cash flow revenue exit model, then the stock’s fair value is $1.76.

Metrics Range Conclusion Discount Rate 13.5%-14.5% 14.% Terminal Revenue Multiple 12x-15x 13x Fair Value $1.54-$2.16 $1.76 Upside 15.2%-60.9% 31.1%

Data courtesy of finbox.io

Aurora stock is still a high-risk speculation despite already falling sharply in the last year. Those betting on growth in the cannabis space should proceed with caution.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns. As of this writing, Chris did not hold a position in any of the aforementioned securities.