There is a consensus emerging among analysts that if you’re going to own a cannabis stock, Aphria (NASDAQ:APHA) is the one to own.
A slow march toward full production, which seemed a weakness last year, is now seen as a strength. The company isn’t pretending to be anything but what it is, a seller of the drug THC. They’re making a little money — not much — but enough to build a valuation on.
So while Canopy Growth (NYSE:CGC) is down about 25% for the year, Hexo (NASDAQ:HEXO) and Tilray (NASDAQ:TLRY) are down a stunning 69%, and Aphria is down just 14%. The shares were due to open Nov. 12 at about $5.05 each, and they have a price to earnings ratio of 16.4.
APHA Is Toasted
For the three months ending in August Aphria earned about $10 million, 5 cents a share, on revenue of about $94 million. (The Canadian dollar is worth about 75 cents.) At the end of the period it had about $336 million in the bank, and just $40 million of long-term debt. The results, announced in mid-October, sparked a rally that sent the stock up 20%.
That was enough for IP.com’s Tom Taulli, who wrote recently that Aphria is getting into the “buy zone.” Earnings matter. The fact that Wall Street is now down on all marijuana stocks should make one with earnings interesting.
Luke Lango, writing after the rally, predicted this could be a $25 stock. A focus on low costs have given Aphria a high-demand niche, he wrote, with the ability to sell product for less while still maintaining margins.
The quarter was also enough for Tipranks, which recommended Aphria for its reasonable expansion and limited operating expenses. These could mean sales of over $500 million next year with margins of 50%.
It could, but nothing is certain. Tipranks has learned that pot is a risky business.
Aphria Stock Is Sustainable
Sustainability has meant different things to different people. I’ve been focusing on sustainability in terms of the ability to sustain losses. Constellation Brands’ (NYSE:STZ) ownership of a big chunk of Canopy is why I recommended it last month. But there’s something to be said for making money.
Aphria is making money by moving more slowly than its peers. It only recently won approval for a growing facility in Ontario with a capacity of about 250,000 kilograms. That’s less than Aurora and Canopy have, but the legal situation for Canadian sales should be better next year, when that facility goes into full production.
IP.com’s Josh Enomoto notes that while other marijuana companies are going into Europe with CBD oil and other non-psychoactive preparations, Aphria is pushing THC as medical marijuana. They’re waiting for legalization and can afford to be patient.
For all these reasons, IP’s Ian Cooper calls Aphria a standout and Vince Martin calls it the best cannabis play right now.
The Bottom Line on APHA Stock
Who am I to disagree with such a broad consensus?
I don’t hold any marijuana stocks. I have no desire to hold them. I don’t do Bitcoin, either. I’m a conservative investor focused on retirement. I don’t care if a marijuana company has cloud software, although I might invest in the cloud software.
Still, I know I’m not everybody. But if you’re in your 30s or early 40s, if you have risk capital you can afford to lose, and if you’re looking for a big score two or three years down the road, Aphria might indeed be the pot stock you are looking for.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
