Looking for Profit in Pot? Read This
Just like it was easy to be a pot stock bull in early 2018, it’s easy to be bearish toward the industry now.
As the share prices of many marijuana companies came crashing down in recent months, even the die-hard marijuana bulls have to take a second look at their pot stock portfolios.
But don’t give up on the industry just yet.
Despite a lack of investor enthusiasm, some marijuana companies are still churning out impressive growth rates. And if things turn out to be as good as their management had hoped, I wouldn’t be surprised to see their stocks making a strong comeback.
Aphria Inc (NYSE:APHA) is one of those companies.
Headquartered in Leamington, Ontario, Canada, Aphria is one of bigger players in the cannabis industry. It is also one of the few pot stocks that trade on the New York Stock Exchange.
Being a widely followed pot company, Aphria stock rallied with the industry last summer. But as pot stocks cooled down, APHA was also heavily sold off. Over the past 12 months, the company’s shares plunged more than 55%. Ouch!
Aphria Inc (NYSE:APHA) Stock Chart
Chart courtesy of StockCharts.com
Given the magnitude of its share-price tumble, you might think that Aphria Inc’s business must be deteriorating. But, after taking a closer look, you’d see that this isn’t really the case.
The company reported earnings on October 15. The report showed that, in the first quarter of Aphria’s fiscal-year 2020, which ended August 31, 2019, the company’s revenue grew a whopping 849% year-over-year to CA$126.1 million. (Source: “Aphria Inc. Announces Second Consecutive Quarter of Profitability and Positive Adjusted EBITDA,” Aphria Inc, October 15, 2019.)
During the quarter, Aphria generated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of CA$1.04 million. Again, this marked a huge improvement year-over-year; in the year-ago quarter, its adjusted EBITDA came in at a negative CA$3.96 million.
The real surprise, though, is the company’s bottom line.
Before the company’s earnings release, Wall Street analysts expected Aphria to report a net loss of CA$0.02 per share for the quarter. But, as it turned out, the company earned net income of CA$16.4 million, or CA$0.07 per share.
Notably, in the prior fiscal quarter, Aphria had net income of CA$15.8 million, or CA$0.05 per share. So, with its latest earnings release, the company has reported positive profits for two consecutive quarters.
This is something quite special. We know that many cannabis companies are in the early stages of their business, so they’re still reporting losses quarter after quarter. Two consecutive quarters of profitability makes APHA stock stand out.
Is the Best Yet to Come?
What’s more impressive than these numbers is what the company plans to achieve in the full fiscal year.
In Aphria Inc’s earnings release, management confirmed their guidance. For fiscal-year 2020, they expect the company to generate net revenue between CA$650.0 and CA$700.0 million, while earning CA$88.0 to CA$95.0 million in adjusted EBITDA.
To put that in perspective, in Aphria’s fiscal 2019, the company generated CA$237.1 million of revenue, while incurring an adjusted EBITDA loss of CA$27.7 million.
Therefore, if the company achieves management’s guidance range, it would be delivering some of the fastest growth rates in the cannabis industry.
Don’t forget: we are not looking at some small start-up here. Aphria Inc is already one of the biggest players in the pot business.
According to the company’s latest investor presentation, its annual production capacity in Canada is on track to reach 255,000 kilograms (562,179 pounds). (Source: “Investor Presentation October 2019,” Aphria Inc, last accessed October 23, 2019.)
And Canada is not Aphria’s only market. The company has invested in building its strategic presence in more than 10 countries around the world.
At the end of the day, don’t forget the saying that the trend is your friend, until it bends.
So, if market sentiment continues to be bearish toward the marijuana industry, APHA stock could trade at subdued levels.
However, because the company is delivering some serious growth rates and is projecting even more impressive numbers, it could gain a lot more investor appeal if things go as management has planned.
For that reason, Aphria stock still deserves a spot on the watch list of anyone who’s interested in profiting from the booming marijuana industry.