APHA Stock Surge
It was a slow day on the marijuana stock market to end last week, but one company saw huge gains on Friday morning: Aphria Inc (NYSE:APHA). APHA stock jumped by nearly 15% as Friday came to a close, sparked by a resounding endorsement from a Jefferies Financial Group Inc (NYSE:JEF) analyst.
Analyst Owen Bennett assigned Aphria stock a 115% higher target compared to its current price. “On our strategic scorecard Aphria scores highly, and third overall behind only Canopy and Aurora,” he explained. “Despite its strong global outlook, its valuation is the cheapest across our space, with allegations around inflated assets/insider deals weighing.” (Source: “Jefferies starts coverage of Aphria (APHA) with a Buy rating,” Stock News, May 24, 2019.)
This is good news for APHA stock bulls, a camp I was formerly a part of back when the company was among the best pot stocks around.
Since then, however, it has faced setback after setback.
Chart courtesy of StockCharts.com
In the above chart, you can see Aphria’s fortunes relative to two main rivals in the business, Canopy Growth Corp (NYSE:CGC) and Cronos Group Inc. (NYSE:CRON). Aphria stock, in black, is clearly underperforming; it’s down 22%, compared to the impressive gains seen by its peers.
And those numbers aren’t much better in 2019, either:
Chart courtesy of StockCharts.com
While at least the company has found its way back into the positive, it is still well behind its peers.
It’s also worth noting that the near-30% gain is being heavily supported by Friday’s 15% jump. So really, without the Jefferies support, Aphria stock would be among the worst performers for marijuana companies of a similar size in 2019.
There are a number of reasons for Aphria Inc’s fall from grace, from acquisitions that didn’t have the desired impact to at-times weak financial reports, but the biggest problem that has plagued APHA stock is the company’s legal troubles regarding purchases it made of South American assets.
While international expansion is almost always a good thing in the marijuana market, there were accusations that the company purchased these assets for inflated prices that benefited specific people while hurting the company overall.
As a result of this legal kerfuffle, Aphria pledged to improve corporate governance and add independent directors to its board. It also made some key changes to its board.
“With these issues now seemingly cleared up, as the company continues to execute, and with likely positive developments on U.S. optionality/Canadian derivatives, we see significant re-rating,” said Bennett.
The analyst is expecting the company to take a similar action in the U.S. to one taken in Germany, where it has acquired non-cannabis assets that can be leveraged at a later date.
“In Canadian derivatives we think there’s a good possibility of a vapor partnership with Pax,” he added. (Source: Ibid)
Bennett does give evidence for why he believes that APHA stock can double in the coming months and years. And I believe it has that potential, too. But I also think that marijuana investors are better off putting their money elsewhere.
Aphria Stock Prediction
When it comes to my Aphria stock prediction, the simple fact is that I expected a rebound to come. And I waited. And waited. And waited. And for months on end, we only saw APHA stock continue to decline.
I wrote for many weeks about how the new lowered price could be a blessing in disguise, lowering a strong company’s value and allowing investors to acquire it at a bargain price.
Basically, Bennett is echoing that prediction (albeit several months after my own) and I still believe that it’s a possibility. In fact, I think there’s a solid chance that APHA stock does indeed double within the next 12 months. However, there’s also a good chance that it will continue to lag behind its rivals.
And that’s where the real problem with the Aphria stock forecast comes in: there’s simply far better options out there for marijuana enthusiasts.
You don’t have to look far across Profit Confidential to find a deluge of solid marijuana picks that have earned our readers big profits.
From Canopy Growth and Cronos Group (the two pictured in the above charts) to OrganiGram Holdings Inc (NASDAQ:OGI) and HEXO Corp (NYSE:HEXO), all these companies have seen huge growth in 2019 and continue to outperform Aphria Inc.
They also have far better fundamentals, whether that means strong partnerships, price-to-earnings ratios, quarterly report figures, acquisitions, etc.
Frankly, Aphria has the potential to be a very good marijuana company, but I think there’s still a lot of risk involved. It’s only now recovering from a legal debacle that soured many pot stock bulls on the company, myself included.
Can this stock recover? Absolutely. The market is frothy and it does have some enticing prospects, the low price being chief among them.
I would caution investors who are looking to grab APHA stock to be prepared for a roller coaster ride toward those gains—that is, if they come at all.
Aphria stock will likely see big growth moving forward. For investors who want a higher-risk, higher-reward marijuana stock, APHA stock is a solid choice.
But considering how well marijuana stocks have performed in 2019, it feels unnecessary to take a risk on a stock that could very well continue to struggle while others are more likely to see gains as the year goes on.