In recent months, Aphria (NYSE:APHA) has attracted increased attention. Admittedly, Aphria stock fell with its peers as investors dumped cannabis stocks amid a supply glut, regulation, and competition from the black market.
However, Aphria offers an unusual benefit for weed stocks—it earns a profit. Moreover, profit forecasts remain intact for APHA despite many peers reporting losses. As new cannabis-based products come to market, both company profits and renewed interest in the marijuana sector should take Aphria stock higher.
To be sure, marijuana stocks have suffered heavy losses since the spring. The promise of massive growth in the cannabis sector has given way to oversupply. Moreover, both taxes and rules imposed by the Canadian government have left many unable to compete with a black market that operates without such rules.
However, Aphria has found a way to prosper under such conditions. Unlike most Canadian weed equities, APHA stock earns a profit. Moreover, analysts forecast that those earnings will grow by 171.4% this year and 400% in the next. Revenues also point to massive growth, an impressive feat when some of its peers saw drops in revenue from quarter to another.
Further, the forward price-to-earnings (PE) ratio stands at just under 26. This is a bargain PE, especially since some of its peers trade at triple-digit price-to-sales ratios. Even when weed stocks reached bubble territory, APHA did not benefit to the degree that stocks like Aurora Cannabis (NYSE:ACB), Canopy Growth (NYSE:CGC), Cronos Group (NASDAQ:CRON), or Tilray (NASDAQ:TLRY).
The Future and APHA Stock
We should see a better outlook from the so-called “legalization 2.0.” This permits edibles, beverages, and other cannabis-based products. Even vaping products should help. As scientists from the Centers for Disease Control (CDC) identify vitamin E acetate as the culprit for vaping-related illnesses, companies can provide a safe offering and revive consumer confidence in the product.
Although these became legal on Oct. 17, they also included a 60-day waiting period for products to receive both inspections and approvals. This means these products should begin to appear on shelves in the Great White North any day now.
Also, it may come as a surprise to some that Aphria has become the third-largest producer in the world. Only Aurora Cannabis and Canopy Growth grow more dried cannabis.
Such a distinction may not help Aphria stock for now as the industry faces a supply glut. Despite the oversupply, Aphria planted 350,000 seedlings at its Aphria Diamond facility in Ontario. This will mean that they can distribute products from this crop beginning in March.
I do not see this as a boon for Aphria stock at the moment. However, as the industry matures, and as Aphria gets past regulatory roadblocks, production capacity will work to its advantage.
So, the question becomes whether this is the time for Aphria to shine?
I think so. As mentioned before, few marijuana companies currently earn a profit. These other firms will depend on stock dilution or loans. However, at much lower stock prices, many of these firms will struggle to obtain funding. I think many will either sell to more prominent players or close their doors.
However, the continuing losses with Aurora and Tilray call into question their top-tier status. Aphria could climb higher as production, profits, and derivative products position the company to rise to the top of its industry.
Final Thoughts on Aphria Stock
Financial stability, as well as the second wave of weed-related products becoming legal, should boost Aphria stock. Despite its production levels, most of the attention has focused on names like Aurora Cannabis, Canopy Growth, and Tilray.
However, as industry challenges have popped the bubble in weed stocks, APHA stock has increasingly stood out for its profits. As it prepares to take edibles, beverages, and other products to market, legalization 2.0 should help drive an Aphria stock rally 2.0.
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.