Aurora Cannabis had a strong Q1, but investors should expect a slowdown in future quarters

Aurora Cannabis (ACB 1.46%) achieved positive free cash flow in its most recent quarter. And the company’s managers believe it can continue to do so. In addition, it also generated double-digit percentage revenue growth.

That’s a lot of good news for Aurora in one quarter, and it’s no wonder the stock has rallied since then.

But before you think about putting money into stocks, it’s worth taking a closer look at the numbers. The company’s results were strong last quarter, however, that doesn’t mean it will be smooth sailing from here on out.

In fact, the cannabis company may even see its sales growth slow in the coming quarters. While it might seem like a safer buy right now, here’s what you need to consider before investing.

The company’s plant propagation business boosted Aurora’s results

Aurora’s net income totaled C$83.4 million ($60.7 million) for the first quarter of fiscal 2025, which ended June 30. It was a 12% increase over the same period last year. A big reason for the growth was because of its plant propagation revenue, which totaled $23.1 million and was up 16% year over year. Its medical marijuana business grew 13%, while sales of consumer cannabis fell 10%.

Over the years, Aurora has moved away from the consumer market and focused on medical marijuana, where the margins are normally much wider. It also acquired a controlling interest in plant propagation business Bevo (one of the largest suppliers of cultivated flower and vegetable plants in North America) in 2022 as a way to further diversify its operations and to give them another way to grow their top line by making them even less reliant on the highly competitive consumer cannabis market.

Aurora’s numbers were good in Q1, but there are still risks with the business

While it was a good quarter, investors should brace for volatility. That’s because the plant propagation business is largely seasonal. Most of its revenue and earnings come in the first half of the year, which means there can be significant quarter-to-quarter volatility.

In the second half of the year, Aurora sales may weaken. Plant propagation activity is likely to decline, and depending on how strong the economy is, the domestic cannabis segment could continue to struggle, especially as Aurora prioritizes the medical market.

And the company warns that while it generated positive free cash flow (what’s left of cash flow after capital expenditures) of $6.5 million last quarter, there will be some higher cash outflows than in normally during the current quarter due to a timely cash payment. Free cash flow can fluctuate because of when receivables are collected and when the company makes payments; investors should not be surprised if free cash flow slips back into the negative later this year.

Another problem I see is that while its revenue grew, the company’s gross profit, excluding changes in the fair value of its biologics assets, totaled just $30.1 million last quarter, and the company spent more on sales, marketing and general and administrative costs ($36.5 million). The business has yet to prove that its operations are sustainable and that it can be profitable without relying on fair value earnings.

Is Aurora Cannabis Stock a Buy?

Aurora Cannabis has done quite well this year, with its stock up more than 40% so far. Shares in the pot are trading below book value, and the price-to-sales multiple is just 1.9. Investors who buy the stock are getting a bit of a discount right now.

But this is still a risky investment.

The company has come a long way in improving its operations in recent years, but most investors will still be better off avoiding Aurora. It is not an attractive growth stock given the inconsistency in its top line, and its fundamentals are not strong enough to be a sustainable option for many value investors.