Before cannabis producer Aphria (NYSE:APHA) reported its earnings earlier this month, sentiment towards Aphria stock had reached terrible levels. Short sellers were saying that the company was a house of cards and that its accounting was far from convincing.
There was also buzz that APHA would have to write down the goodwill from some of its acquisitions. In the meantime, there was volatility in the markets and other large cannabis players – like Tilray (NASDAQ:TLRY), Canopy Growth (NYSE:CGC) and Cronos Group (NASDAQ:CRON) – were getting hit with lots of selling.
Regardless, APHA was able to prove the bears wrong – and in a big way. In its last quarterly report, the company announced that its revenues had soared nearly ten times year-over-year to CA$128.6 million. APHA also reported a profit of CA$15.8 million. Keep in mind that analysts, on average, had been looking for a loss of CA$13.9 million.
So given all this, it should be no surprise that APHA stock subsequently surged over 30%. True, since then Aphria stock has lost some of its value. But it’s still well above its levels from before the earnings announcement.
Now the momentum of Aphria stock is likely to continue. For fiscal 2020 – which ends in May – the company expects its revenues to hit CA$650 million to CA$700 million, with adjusted EBITDA of CA$88 million to CA$95 million.
Much-Needed Leadership
In December, Irwin Simon became CEO of APHA. At the time, the company’s situation was looking dicey. Aphria stock was falling, there were concerns about its overall strategy and the company was the target of a hostile takeover by Green Growth Brands (OTCMKTS:GGBXF).
Yet Simon wasted little time in getting things on track. Since 1993, he had been the CEO of Hain Celestial Group (NASDAQ:HAIN), where he demonstrated a strong managerial track record.
Simon has effectively dealt with the company’s supply-chain issues in Canada. He also has focused on being disciplined on costs and has pursued a low-price strategy.
During the company’s latest earnings call, Simon noted: “In what was a challenging time for us, our team came together as an organization. We identified immediate priorities to help generate substantial progress near-term. We built upon existing business fundamentals, capabilities, streamlined our processes and strengthened our governance and focused on building our brand awareness all with an emphasis on consistent execution. Those efforts enabled us to achieve a positive outcome in the fourth quarter, which you’re seeing today.”
Simon is interim CEO. But he may ultimately become the permanent CEO. Remember that Steve Jobs was initially interim CEO when he returned to Apple (NASDAQ:AAPL) during the 1990s.
The Bottom Line on Aphria Stock
Despite the recent bearishness towards marijuana stocks, their valuations still remain on the high side. But this is not the case with Aphria stock. APHA stock is trading at about 2.3 times analysts’ average 2020 sales estimate. That is fairly reasonable in light of the company’s strong growth.
True, its growth has primarily been due to acquisitions. But hey, dealmaking is critical in the cannabis sector, as there is a “land grab” situation in the space. The good news for Aphria stock is that the company has shown a knack for finding the right targets.
Nevertheless, Aphria stock could still be volatile. It probably will be because the cannabis industry is still in the early phases. But Aphria stock does have the potential to be a long-term winner.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
