Aphria Inc: This Beaten-Down Pot Stock Just Grew Its Business by 969%

Why Aphria Stock Deserves Investor Attention

If you’ve been following pot stocks, you’ll know that for the most part of the last few months, Aphria Inc (NYSE:APHA) hasn’t been a hot commodity.

But if an investor decides to cross this Leamington, Ontario, Canada-based cannabis company off their watchlist, they might be missing a big opportunity.

The first thing to note about Aphria is that it is one of the bigger players in the business; the fact that the company trades on the New York Stock Exchange rather than over the counter should be a sign. The company’s 1.1-million-square-foot Aphria One greenhouse facility is capable of producing 110,000 kilograms per year.

At the same time, Aphria has other facilities that are awaiting license approval. Once these facilities are operating at full capacity, Aphria’s combined annual Canadian production rate would reach a whopping 255,000 kilograms. (Source: “Investor Presentation April 2019,” Aphria Inc, last accessed August 7, 2019.)

Meanwhile, the company also plans to expand internationally. At the time of this writing, Aphria has invested in building strategic partnerships in more than 10 countries across five continents.

Yet despite its solid presence in the cannabis industry, sentiment hasn’t always been bullish towards APHA stock. For instance, in the second quarter of 2019, Aphria shares tumbled more than 24%.

Just to be fair, that was a period where many pot stocks were plunging. The North American Marijuana Index was also down double-digits in the second quarter.

Still, the fact that one of the biggest cannabis companies could experience a huge tumble in a short period of time is a reminder of the risks associated with pot stock investing.

Now, however, it may be time to give this beaten-down cannabis stock a second look.

Aphria Inc: Running a Fast-Growing Business

Investors like the cannabis industry for a very simple reason: growth. And despite not being a hot ticker, Aphria Inc does deliver some very impressive growth numbers.

In the fourth quarter of Aphria’s fiscal year 2019, which ended May 31, the company generated CA$128.6 million in net revenue. The amount represented a 75% increase sequentially and a staggering 969% jump year-over-year. (Source: “Aphria Inc. Announces 158% Increase in Adult-Use Sales and Profitable Fourth Quarter,” Aphria Inc, August 1, 2019.)

While the bulk of this quarter’s top-line number came from its distribution businesses, Aphria’s cannabis business has also picked up some serious momentum. In particular, the company’s revenue from adult-use cannabis totaled CA$18.5 million in the fourth fiscal quarter, representing a 158% increase from the prior quarter.

The reality is, despite the lack of investor enthusiasm towards the cannabis industry in recent months, Aphria Inc’s production has been ramping up nicely. In the fourth fiscal quarter, the company sold 5,574.0 kilograms of cannabis, which more than doubled the 2,636.5 kilograms sold in the previous quarter.

What’s more is that Aphria managed to streamline its operations and improve production efficiency. From the third fiscal quarter to the fourth fiscal quarter, the company’s cash cost to produce dried cannabis went from $1.48 per gram to $1.35 per gram, marking an 8.8% improvement. During the same period, Aphria’s all-in costs of goods sold dropped 17.9% from $2.86 per gram to $2.35 per gram.

Turning a Profit

And that’s not all. In the latest reporting quarter, Aphria Inc also managed to accomplish something that most pot stocks haven’t been able to do: turn a profit.

You see, the vast majority of cannabis companies are focusing on establishing and growing their presence. As a result of being in the early stage, a lot of pot companies are incurring big losses quarter after quarter.

Aphria, on the other hand, reported a net income of CA$15.8 million, or $0.05 per share, in the fourth fiscal quarter. This represented a substantial improvement because in the third fiscal quarter, the company had a net loss of CA$108.2 million, or $0.43 per share.

Also, the company’s cannabis operations delivered positive adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of CA$1.9 million in the reporting quarter. Again, this marked a big step-up for Aphria because in the prior fiscal quarter, its adjusted EBITDA from cannabis operations was a negative CA$12.7 million.

And the best could be yet to come. At the latest earnings conference call, Aphria’s Chief Financial Officer provided the following guidance:

“Turning to our outlook for fiscal 2020, we expect to report net revenue of approximately CAD 650 million to CAD 700 million with distribution revenue representing slightly more than half of the total net revenue. In addition, we expect to report adjusted EBITDA of approximately CAD 88 million to CAD 95 million.”

Aphria Inc (NYSE:APHA) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Looking at the above chart, it’s easy to see that Aphria Inc’s latest earnings report has already cheered up some investors. If the company can deliver on its guidance range—which would represent another big step forward in its business—it will likely further boost the appeal of APHA stock.