At some point, when a company’s revenue is minuscule relative to its market capitalization, the stock is very likely to face selling pressure. This is an especially high-risk scenario when markets, in general, are on the decline. With pot stocks, Aphria (NYSE:APHA) stock stands out because its shares are down nearly two-thirds from 52-week highs. What are the issues with Aphria stock that investors do not like?

In Q4 2018, Aphria closed its Nuuvera acquisition. Although it will expand its reach by gaining seven international jurisdictions, near-term revenue will still grow at a relatively slow pace. The company reported revenue growing 17%, from $10.2 million to $12 million. Yet at a market cap of $1.46 billion, down two-thirds from the September-October period, Aphria stock still looks expensive. It trades at a 30X annualized sales valuation (price-to-sales).

Weak Data Points in Fourth Quarter

Aphria reported cannabis oil sales falling from 33% to 29% by patient sales by volume. It blamed the weak performance at Broken Coast. Broken Coast still continued with a price increase, raising prices to an average of $10 a gram. The fact that cash costs fell slightly by one cent, to 95 cents will help the company sustain its adjusted gross margin levels of 78.7%.

The Nuuvera acquisition fulfills Aphria’s global growth ambitions but is very costly. At $425 million, the deal may have looked good at first because Nuuvera was originally valued at twice that amount (of $800 million). Buying the unit is especially disconcerting because Nuuvera produced no revenue and has no experience producing cannabis. At least with Broken Coast Canada, which cost Aphria $217 million, this unit is experienced in the medical cannabis market.

Scrutiny over Aphria’s acquisition of LATAM Holdings forced the company to announce that it would review the governance process related to the acquisition. The deal is yet another expensive one, costing 15,678,310 shares. At the time, the deal was worth $193 million when APHA stock traded at $12.31. At today’s share price of $5.58, the deal’s dollar value shrank to $87 million.

Unhappy Shareholders

The decline in Aphria stock means little to the shrinking valuation of the LATAM deal. Existing shareholders face a paper loss. And if the Board uncovers no issues with LATAM operations, it is not likely to dissuade short-sellers.

Short float stood at 7.19%.

Price Target Implies a 160% Upside

Per Tipranks, analysts set a $14.50 target price on APHA stock.

Source: Tipranks

With revenue growth absent in the short-term, markets will not likely bid Aphria stock higher in the months ahead. Investors have plenty of other pot stocks to choose from. Canopy Growth Corporation (NYSE:CGC) and Cronos (NASDAQ:CRON) are bigger than APHA from a market capitalization perspective. Of course, investors could sell shares in those firms, cutting its valuation.

Bottom Line on Aphria Stock

Is Aphria the stock to own forever? When its future prospects are getting questioned, investors will want to stay on the sidelines with this stock. Besides, the euphoria in the cannabis sector is winding down. This could accelerate the underperformance with APHA stock. Aphria looks like a good deal that has deep value at a share price in the single digits.

But the $5.50 trading price is a result of high uncertainties ahead. More bad news could sink Aphria stock further. Stay clear of investing in this company until market sentiment reverses. That may happen, eventually, but its chances are low.

As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.