APHA Stock: Massive Single-Day Gain Shows Big Promise for Pot Stocks

APHA Stock: Massive Single-Day Gain
iStock.com/Ong-ad Nuseewor

APHA Stock Quarterly Report

Whenever you see 25% gains in a single day, you better pay attention to the company making those gains.

Aphria Inc (NYSE:APHA) was able to score such a win following the release of its second-quarter earnings report. APHA stock flew high before falling back to Earth the next day.

There’s a lot of important stuff to unpack in Aphria’s quarterly report, and it has to do with more than just Aphria stock.

First, let’s tackle the numbers in order to see why investors were so taken by Aphria’s Q1 report.

The big achievement is that Aphria was able to score its second consecutive profitable quarter. Considering that many pot companies are only dreaming of profits right now, that’s an impressive feat.

Net revenue jumped to CA$126.1 million in the quarter, an increase of 849% from the same quarter in the previous year, although it was also a decrease of two percent from the last quarter. (Source: “Aphria Inc. Announces Second Consecutive Quarter of Profitability and Positive Adjusted EBITDA,” Aphria Inc, October 15, 2019.)

The revenue from recreational cannabis of CA$20.0 million in the first quarter was good for an increase of eight percent from the prior quarter. Net income came in at CA$16.4 million, and adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) came in at CA$1.0 million.

The company also ended the quarter with a strong balance sheet, with CA$464.3 million of cash, cash equivalents, and liquid marketable securities. That money will fund Canadian and international growth, something I’ve long championed in the marijuana industry.

Aphria Inc is ramping up its production, with a projected annual capacity of 255,000 kilograms (over 562,000 pounds) when all of its facilities are up and running.

Aphria is one of the few legal marijuana companies to see profits at this relatively early stage of the industry’s growth. As such, investors are excited to see where APHA stock can go from here.

Of course, the current marijuana stock correction meant that those massive single-day gains were short-lived. Aphria stock saw a decline of about eight percent the following day.

Still, the numbers were extremely bullish for Aphria and speak well to a strong future for the company.

Another boon was that the company reiterated its outlook for fiscal 2020, which calls for revenue of CA$650.0 to CA$700.0 million and adjusted EBITDA of CA$88.0 to CA$95.0 million. (Source: “Aphria, the first large pot producer to report second profit, soars in early trading,” Financial Post, October 15, 2019.)

That’s especially good news, seeing as how several other notable pot companies have had to adjust their fiscal projections or otherwise lower expectations for sales in 2020, sending their shares into a tailspin.

The reason for those lowered projections are problems we’ve seen crop up time and again in the marijuana industry. Namely, slower-than-expected store openings, delays in government approval for new products, and supply problems.

All those can be rectified in relatively short order, and they don’t dissuade me at all from a bullish long-term projection for the marijuana industry.

In any case, Aphria Inc wasn’t done there; it followed its quarterly report with a deal for a four-year, non-exclusive distribution agreement with AMP German Cannabis Group Inc (CNSX:XCX). (Source: “AMP German Cannabis Group Signs Distribution Agreement with CC Pharma, a Wholly Owned Subsidiary of Aphria and a Leading Pharmaceutical and Medical Cannabis Distributer in Germany,” Cision, October 15, 2019.)

AMP German Cannabis stock shot up as a result, gaining nearly 20% after the deal’s announcement.

APHA stock, on the other hand, was still reeling from the pushback following its huge gain from October 15, so the news about the AMP deal didn’t have a huge impact on the stock.

But the deal could pay off, since it provides Aphria access to 13,000 pharmacies throughout Germany, the largest market in the European Union.

Overall, this has been a very strong week for Aphria stock, even if the gains were short-lived.

But what’s more, this lays out a very enticing template for future marijuana stock gains.

Marijuana Stock Recovery

The marijuana stock correction has wreaked havoc across the industry, with many pot stocks still on the downswing. Having said that, the future of the industry is as bright as ever, even if the current market sentiment has seen many stocks decline.

But what APHA stock shows us is that this may be a blessing in disguise for new investors.

You see, I’ve long talked about how, the lower marijuana stocks drop, the more they begin to resemble bargains. I have little doubt that most major pot stocks will outdo their former heights in the coming years, making them strong buy-and-hold moves.

But with their current discounted prices, any positive developments in the marijuana industry can send share prices soaring.

Aphria stock demonstrated that with its performance on October 15 (25% gains in a single day, remember).

With most pot stocks having taken a pretty severe lashing during the recent marijuana stock correction, what APHA stock’s huge gain shows us is that there is still a strong appetite for powerful pot stocks.

When the marijuana stock recovery comes (and it will come), pot stocks will see huge gains in short periods.

Anything from solid quarterly reports, to legalization, to outside investment can help send pot stocks soaring once more. And when they soar, it will be swift and high.

As such, even with the current marijuana correction still putting a damper on the industry, I’ve actually never been more bullish on the long-term potential of marijuana stocks.

Analyst Take

The marijuana stock market is still navigating through the current correction. But with each passing day, the opportunity to see big gains from this down period grows.

Sure, there’s some risk involved as volatility hits new peaks during the downturn, but the long-term projection for the marijuana industry is just as positive as it was before the slowdown.

As such, with their current share prices being so low, even moderate victories for cannabis companies can send their stocks skyrocketing toward their former glory. Right now is a great time to be a pot stock investor if you’re willing to weather the storm.