With earnings in the rear-view mirror, is Aphria (NYSE:APHA) the best in breed among cannabis stocks? Let’s take a look at what’s happened, the outlook for the industry and whether a risk-adjusted purchase in APHA stock makes sense in today’s market.
Last week was a big one for cannabis stocks. The bulk of Canada’s top producers including Tilray (NASDAQ:TLRY), Aurora Cannabis (NYSE:ACB), Cronos (NASDAQ:CRON) and Canopy Growth (NYSE:CGC) all bowed to the quarterly earnings altar. It was ugly and Aphria stock wasn’t entirely immune.
In summary, results from TLRY, ACB, CGC and CRON uniformly failed to live up to already trimmed expectations. From slow-to-happen retail storefront distribution, growing costs, weaker margins, wider-than-forecast losses and more, a lot went wrong. And investors showed their collective lack of patience a year into Canada’s legalization by smoking already-weak cannabis stocks to year-to-date lows.
What About Cannabis 2.0?
But what about the future? Cannabis 2.0 is just around the corner. The coined new era for this market is when edibles, vaporizers and beverages become legal. Also, it’s not a stretch to think licensing approval required to open up brick-and-mortar cannabis shops in Canada will improve going forward. That combination could be a boon for those companies which still have the wherewithal to get past a very rough patch for the industry.
The better news? Aphria stock has already differentiated itself in a couple ways which make an investment today more credible than in other cannabis stocks. For one, unlike last week’s crop of awful quarterly results, APHA stock actually turned a surprise profit of 5 cents when it reported in mid-October. Nice, right? But that’s not all APHA shares offer.
APHA’s concentration within the cannabis market is as a medical seller of the drug THC. Let the other producers worry about Cannabis 2.0. As InvestorPlace’s Dana Blankenhorn notes, Aphria is showing this niche market is enough to build a sustainable business on. And there’s still more.
Aphria has been slow to gain approval for growing facilities. Size does matter, but it’s not always a race to be the largest. There’s certainly proof of that in 2019 — sorry Canopy Grow. If the legal environment in 2020 does improve, with money in the bank and virtually no debt, an already profitable APHA stock is ready to grow its business further.
Aphria Stock Monthly Chart
For contrarian-minded investors the APHA stock price chart is also a standout among cannabis producers. It wasn’t always the case. In fact, Aphria led the market lower as shares topped out nearly two years ago in January 2018. However, Aphria’s bear market could be nearly finished.
Aphria stock is in position to form a double-bottom pattern relative to its December 2018 low. I’ve highlighted that monthly candlestick on the provided APHA stock price chart. Currently, a rally as early as December through this month’s high of $5.41 would signal a pattern bottom.
The technical case against a meaningful low would be APHA’s failure to hold the 76% Fibonacci support. Many investors reliant on this retracement level will see shares as increasingly prone to a full-blown drop towards 2015’s all-time low of 65 cents. But I’m willing to look past this type of negativity. In this instance the Fibonacci failure actually falls squarely in the middle of December’s volatile hammer pivot. As charts are a reflection of human error and emotion, I believe this level of bullishness is an appropriate allowance to make.
To be clear, I wouldn’t bet against Aphria stock not being able to sink back to its lows. But there’s no reason to, either. By waiting for the discussed price confirmation and keeping a stop-loss tied to the pattern, future APHA stockholders ensure the possibility of growing their investment without getting smoked.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.