ANALYSIS: 7 Highlights from Aphria Earnings Q3 2018

aphria q3 earnings result
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Aphria Third-Quarter Results

Shares of Aphria Inc (OTCMKTS:APHQF, TSE:APH) surged 10% after the company announced its third-quarter results on Monday morning, showing that investors are excited about the company’s momentum.

I could copy and paste those numbers here, but a monkey could do that.

What you need is context, so I’ve included seven rapid-fire insights, which—hopefully—should give you some perspective on Aphria’s earnings report. (Source: “Condensed Interim Consolidated Financial Statements for the Three Months and Nine Months Ended February 28, 2018 and February 28, 2017,” Aphria Inc, last accessed April 16, 2018.)

1. Aphria’s Sales Doubled Even Before Canada Legalized Marijuana

Everyone expected Aphria’s revenue to surge after July 1, when Canada will be lifting its federal ban on recreational marijuana, but no one expected medical marijuana sales to rise 100% this quarter.

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2. Aphria Increased Its Price per Gram

Aphria’s “fair value less costs” of harvested cannabis is $3.75 per gram, which is pretty darn good, all things considered. It also explains this quarter’s sales increase.

3. Aphria Decreased Its Production Costs

While rivals like Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB) are producing marijuana at $1.41 per gram, Aphria is busy churning out a similar product at $0.96, making it one the most competitive producers in the market. Of course, the all-in costs are somewhat higher, but that’s true across the industry.

4. Aphria Made a Tidy Profit by Selling Its LHS Shares

When a Canadian stock exchange threatened to delist Aphria for owning shares in Liberty Health Sciences Inc (OTCMKTS:LHSIF, CNSX:LHS), an American marijuana company with national ambitions, Aphria had no choice but to sell some of its LHS shares. On the flip side, Aphria sold its shares in LHS for $26.3 million, a one-time boon that lifted both net earnings and earnings per share (EPS).

5. EPS Grew Slower Than Net Earnings

Overall profits surged 161% while profits per share only doubled. Why, you ask? Well, because Aphria dished out more stock in compensation and acquisitions, thereby diluting the claims that each stock has on profits.

6. Aphria Expanded Through Acquisition

Although it’s true that Aphria is overly generous with its stock rewards, it isn’t completely reckless. The company’s acquisition of Broken Coast Cannabis, for example, helped the Aphria build out its inventory and approach scale much more quickly than through capital expenditure alone.

7. Aphria Keeps Its Promises (So Far, Anyway)

The company’s plans for “Aphria One,” a 700,000 square-foot production facility, is miraculously still on track. Anyone who has dealt with construction knows how difficult it is to keep these projects on time and on budget, so I think it says a lot about the company’s management team that they’re not five months behind schedule.

Not a bad quarter, right? If you’re interested in seeing the raw data for yourself, you may want to look at the Aphria earnings Q3 2018 report. It’s a fascinating read.

But now, let’s get down to the good stuff: what the earnings report means for the APHQF stock price, and whether we will change our Aphria stock forecast for 2018.

Aphria Stock Forecast for 2018

As I mentioned earlier, APHQF stock turned vertical immediately after the third-quarter results came out. Just take a look at the chart below.

Chart courtesy of StockCharts.com

It’s obvious that investors love this report. Their optimism was even stronger because APHQF stock was coming off a bad three months, with shares slipping more than 43% over the buyout of Nuuvera Inc (CVE:NUU).

For those unfamiliar with the Nuuvera deal, it was an acquisition that Aphria failed to disclose to shareholders.

Management claims that, because there was no legal requirement for them to announce the deal, it wasn’t a shady thing to do at all. But that’s a bit like dropping someone’s burger on the floor, wiping it off, and letting them eat it on the technicality that you didn’t have to tell them.

Sure, it’s technically not a lie. But is a sin of omission much better? Obviously, investors didn’t think so, because the market cut the APHQF stock price in half during January and February.

Now, however, investors are getting back to common sense. They’re starting to evaluate Aphria based on its strength as a company, rather than as an object of trust, which is why APHQF stock is starting to rise.

What happens next, you ask?

Well, we expect Aphria to continue its bullish run, probably into the $18.00 to $20.00 range, before taking a breather. Shares are currently trading at roughly $9.52.