Aphria (OTCMKTS:APHQF) just announced that it has filed to up-list its stock to the New York Stock Exchange. The Ontario-based cannabis company will follow its larger peers Tilray (NASDAQ:TLRY) and Canopy Growth (NYSE:CGC) onto a major U.S. exchange. Aurora Cannabis (OTCMKTS:ACBFF), another larger firm, will trade on the NYSE starting on October 23rd. When APHQF begins trading on the NYSE, Canada’s four largest marijuana companies will all trade on a major U.S. exchange. Like with its counterparts, this move should increase the ability to APHQF to further benefit from the recent popularity of cannabis stocks.
APHQF Is a Welcome Addition to the NYSE
To be sure, the U.S. market has experienced a shortage of cannabis stocks relative to the demand. So far, only two countries, Canada and Uruguay, have approved the full legalization of marijuana. This fact alone has limited the growth of cannabis companies worldwide.
In the U.S., marijuana remains prohibited under federal law. Though a few states enjoy full legalization, the federal restrictions limit the ability for marijuana companies to operate outside of their home states. As such, most cannabis firms remain small and have so far kept their stocks off of the major exchanges. This forces investors to place a strong emphasis on Canada and its cannabis companies.
APHQF Offers Profits and a Cheaper Valuation
APHQF stock could also bring investors who have previously avoided cannabis stocks into the sector. Due to high demand, most cannabis stocks have reached nosebleed valuations despite modest revenues and a lack of profitability.
Compared to its peers, APHQF appears reasonable. First, Aphria stock has already become profitable. Analysts forecast that the company will earn 15 cents CAD (11 cents) per share in the current fiscal year. Next year, they predict that will increase to 54 cents CAD (41 cents) per share. That makes the current P/E ratio of over 130. However, on a forward basis, the P/E falls to just 35. Additionally, APHQF trades at only about three times its book value. That compares to Canopy at 11.8 times book value and Tilray with a price-to-book ratio of 403!
Moreover, just because its lags larger peers on valuation metrics does not mean it falls behind on growth. Analysts predict 50% profit growth for the company this year, and 260% growth next year. This compares to Canopy, which analysts expect will see 15% profit increases this year and 150% the next year. Hence, APHQF stock offers a higher growth rate at a lower price.
Still, investors should note the size differential. Despite its fourth-place status, at a $3.7 billion market cap, APHQF will have to nearly triple in value to catch up to third-place Aurora and its value of $10.2 billion. Still, as the inevitable consolidation occurs, Aphria stands a good chance of survival as Canada’s numerous small cannabis companies sell out or fail to stay in business.
Plus, with its better profitability and pending listing on the NYSE, I see this as the stock of choice among the large Canadian cannabis stocks.
The bottom line on APHQF
Aphria’s move to the NYSE likely makes APHQF the stock to own among large Canadian cannabis companies. This move will open APHQF stock to a new class of investors that could not buy stocks that trade on the pink sheets.
Moreover, APHQF will appeal to investors who want a cannabis stock that has not entirely lost touch with its fundamentals. While most investors would consider a forward P/E of 35 pricey; for large pot stocks, this is dirt cheap…or at least reasonable.
Observers saw most of the dispensaries and online cannabis stores in Canada sell out on legalization day. Given this and the pent-up demand in most other countries left by the decades of prohibition, many investors want to participate in this market. The move to the NYSE, along with Aphria’s valuation and profitability, make APHQF stand out among the larger Canadian cannabis companies.
As of this writing, Will Healy is long APHQF stock. You can follow Will on Twitter at @HealyWriting.
