Aphria (NYSE:APHA) stock has suffered along with other marijuana stocks. First oversupply and then vaping-related illnesses weighed on Aphria stock and other marijuana stocks.
However, unlike most cannabis stocks, APHA is profitable.
Moreover, it has made itself into one of Canada’s leading producers. Although Aphria stock may have trouble impressing investors in the near-term, it has left itself poised to deliver continued growth and profits in future quarters.
APHA Stock Suffered Along With Its Peers
Aphria stock has become one of the more intriguing plays among marijuana stocks. Investors do not consider it one of the “top four” marijuana stocks, despite its recent production capacity increases.
For now, a worldwide dried marijuana supply glut is working against APHA. Since April. Aphria stock has lost approximately half of its value However, considering how the oversupply has affected most marijuana stocks, Aphria stock has suffered relatively little.
Also, the valuation of Aphria stock remains attractive. Its forward price-earnings (PE) ratio stands is about 26.9. That’s lower than the price-sales ratios of many prominent marijuana stocks. Also, considering that analysts, on average, expect the company’s profit to jump 171.4% this year and 400% the next, APHA looks quite cheap.
Aphria’s Focus on Production Might Concern Investors
APHA recently announced that Health Canada had granted it a second license for its Aphria Diamond greenhouse facility. As a result, Aphria’s production capacity jumped by 1.3 million sq. ft. to a total of more than 2.4 million sq. ft.
APHA will be able to produce 255,000 kg, of cannabis, up from its current 140,000 kg. As a result, Canaccord Genuity believes Aphria will have a 12% share of Canada’s recreational market and become the country’s third-largest grower, lagging only Aurora Cannabis (NYSE:ACB) and Canopy Growth (NYSE:CGC).
That should serve the company well over the long-term. Unfortunately foe those who are bullish on Aphria stock, the market did not react enthusiastically to this news. In a market already oversupplied with cannabis, few investors want to hear about production increases. Moreover, Aphria lacks an alliance comparable to Canopy Growth’s partnership with Constellation Brands (NYSE:STZ), or Cronos Group’s (NASDAQ:CRON) deal with Altria (NYSE:MO). Aphria’s most significant differentiators are its production capacity and the comparatively low valuation of Aphria stock. Consequently, investors may not pile into APHA stock immediately.
Consider the Longer Term Outlook of Aphria Stock
I think investors need to look at the company’s rosier medium-term and long-term outlook. Aphria stock has suffered because of health concerns about vaping. The Centers for Disease Control has found Vitamin E acetate in all of the vaping users who have been hospitalized for lung conditions. If it can be quickly confirmed that Vitamin E acetate caused the illnesses, vaping companies can more easily move past this health issue.
Moreover, I do not think the cannabis supply glut will last. Now that Canada has legalized derivative cannabis products such as edibles and beverages, the country’s oversupply of cannabis should ease. As a result, Aphria’s results should improve.
The Bottom Line on Aphria Stock
Aphria stock remains well-positioned to rise, but it may not start to rally yet. APHA stock has been pushed down due to health concerns and supply issues, but these problems could ease soon.
Despite all of the industrywide challenges, APHA will still earn a profit for this year. That should boost the profile of Aphria stock, even as the industry faces vast amounts of growing pains.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.