Aphria Inc: This Beaten-Down Pot Stock Just Grew Its Business by 969%

Aphria Inc A Battered Pot Stock That Grew Its Business by 969%
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Why Aphria Stock Deserves Investor Attention

If you’ve been following pot stocks, you’ll know that for most of the last few months, Aphria Inc (NYSE:APHA) hasn’t been a hot commodity. But if investors leave this Leamington, Ontario, Canada-based company off their watchlists, they might be missing a big opportunity.

The first thing to note about Aphria is that it’s one of the bigger players in the cannabis business. The fact that the stock trades on the New York Stock Exchange rather than over the counter is a good sign.

Furthermore, the company’s 1.1-million-square-foot “Aphria One” greenhouse facility is capable of producing 110,000 kilograms (242,508 pounds) per year.

At the same time, Aphria has other facilities that are awaiting license approval. Once these facilities are operating at full capacity, Aphria’s combined annual Canadian production rate would reach a whopping 255,000 kilograms (562,179 pounds). (Source: “Investor Presentation April 2019,” Aphria Inc, last accessed August 7, 2019.)

Meanwhile, the company also plans to expand internationally. At the time of this writing, Aphria has invested in building strategic partnerships in more than 10 countries in five continents.

Yet despite its solid presence in the cannabis industry, sentiment hasn’t always been bullish towards APHA stock. For instance, in the second quarter of 2019, Aphria shares tumbled more than 24%.

Just to be fair, that was a period where many pot stocks were plunging. The North American Marijuana Index was also down double-digits in the second quarter.

Still, the fact that one of the biggest cannabis companies could experience a huge tumble in a short period of time is a reminder of the risks associated with pot stock investing.

Now, however, it may be time to give this beaten-down cannabis stock a second look.

Aphria Inc Is Running a Fast-Growing Business

Investors like the marijuana industry for a very simple reason: growth. And despite not being a hot ticker, Aphria delivers some very impressive growth numbers.

In the fourth quarter of Aphria’s fiscal year 2019, which ended May 31, the company generated CA$128.6 million in net revenue. The amount represented a 75% increase sequentially and a staggering 969% jump year-over-year. (Source: “Aphria Inc. Announces 158% Increase in Adult-Use Sales and Profitable Fourth Quarter,” Aphria Inc, August 1, 2019.)

While the bulk of this quarter’s top-line number came from its distribution businesses, Aphria’s cannabis business has also picked up some serious momentum. In particular, the company’s revenue from recreational cannabis totaled CA$18.5 million in its fourth fiscal quarter, a 158% increase from the prior quarter.

The reality is, despite the lack of investor enthusiasm toward the cannabis sector in recent months, Aphria’s production has been ramping up nicely. In its fourth fiscal quarter, the company sold 5,574 kilograms (12,289 pounds) of cannabis, which more than doubled the 2,637 kilograms (5,813 pounds) sold in the previous quarter.

What’s more is that Aphria managed to streamline its operations and improve its production efficiency. From its third to fourth fiscal quarter, the company’s cash cost to produce dried cannabis went from $1.48 to $1.35 per gram, marking an 8.8% improvement. During the same period, Aphria’s all-in costs of goods sold dropped 17.9% from $2.86 to $2.35 per gram.

Turning a Profit

And that’s not all. In its latest reporting quarter, Aphria Inc also managed to accomplish something that most pot companies haven’t been able to do: turn a profit.

You see, the vast majority of cannabis companies are focusing on establishing and growing their presence. As a result of being in their early stage, a lot of pot companies have incurred big losses quarter after quarter.

Aphria, on the other hand, reported a net income of CA$15.8 million, or $0.05 per share, in its fourth fiscal quarter. This was a substantial improvement because, in its third fiscal quarter, the company had a net loss of CA$108.2 million, or $0.43 per share.

Also, the company’s cannabis operations delivered positive adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) of CA$1.9 million in the quarter. Again, this marked a big step up for Aphria because, in the prior fiscal quarter, its adjusted EBITDA from cannabis operations was a negative CA$12.7 million.

And the best could be yet to come. In the company’s latest earnings conference call, Aphria’s chief financial officer provided the following guidance:

Turning to our outlook for fiscal 2020, we expect to report net revenue of approximately CAD 650 million to CAD 700 million with distribution revenue representing slightly more than half of the total net revenue. In addition, we expect to report adjusted EBITDA of approximately CAD 88 million to CAD 95 million.

Aphria Inc (NYSE:APHA) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Looking at the above chart, it’s easy to see that Aphria Inc’s latest earnings report has already cheered up some investors. If the company can deliver on its guidance range—which would be another big step forward for the business—that will likely further boost the appeal of APHA stock.