by Ian Harvey
October 07, 2020
Aphria stock price shot more than 14% higher Monday, and continued the upward momentum today, due to an analyst price increase on the stock as well as positive commentary. And next week earnings are on tap which should be substantial.
As well, Stock Options Made Easy “Mentorship Program Members,” presently down on an options trade, are now looking at a positive gain instead.
The COVID-19 pandemic caused many industries to come to a standstill; however, cannabis stock has continued to remain relatively strong, as cannabis provides relief to those dealing with the on-going crisis. The recent surge in marijuana sales has helped cannabis companies' revenues to skyrocket, even in these unprecedented times.
While some marijuana companies have struggled during the shutdown and recovery, Aphria has not only survived the crisis but is starting to surge again.
Stock Options Made Easy “Mentorship Program Members” benefited in July after placing a call options trade on the stock which provided a potential profit of 158%.
After profiting another trade was placed when the stock pulled back again. After the Aphria stock price fell our trade fell from $0.70 to a low last week of $0.10. At this point it was not beneficial to sell but we will see if the earnings report due next week will help revive Aphria stock price.
And Monday saw Aphria stock price surge more than 14% after Cantor Fitzgerald analyst Pablo Zuanic raised the firm's price target to C$15.50, or about US$11.68, from C$12.50, or about US$9.42, while keeping an overweight rating on the shares. Zuanic said he expects the August/September quarter in Canada to show market growth acceleration sequentially.
Zaunic reiterated Aphria as their top pick and says Aphria is making a push into the value category, where they have eight 28g SKU’s which is the highest in the industry.
Zuanic stated that the entire cannabis market grew roughly 10% on average with Aphria stock price up +13%, which outperformed the +10% market increase.
Aphria had Flower sales increase +16%, Pre-rolls +25%, Oils +7%, and Vapes +6% in the last four weeks. Zaunic says Aphria is the clear leader in the vape business and holds a 24% market share for that category. Aphria has 14%, 15%, 20% market share for flowers, pre-rolls, and oils, respectively.
Aphria is one of the largest cannabis companies in Canada, and has shown consistency in its earnings reports, reporting a positive EBITDA for the past five consecutive quarters. Aphria saw a 5% quarterly net revenue increase and adjusted EBITDA of $9.3 million Canadian dollars for the fourth quarter of fiscal 2020, which ended May 31. The net revenue increase resulted from the distribution of cannabis, particularly dried cannabis flowers, with 10,831 kg sold for the adult-use market and 453 kg sold wholesale. The medical cannabis segment also contributed to Aphria's revenue growth with 1,273 kg sold. The Ontario-based pot grower has recorded decent financial results of late, with CA$497.2 million in cash and cash equivalents on the books.
During Aphria's Q4 earnings conference call, CEO Irwin Simon said, "We're setting ourselves apart from the rest of the cannabis industry, generating some of the strongest sales growth, maintaining one of the strongest balance sheets and cash positions, compelling consumer brands, and a well-diversified global business."
And in 9 days, October 15, Aphria will report first quarter earnings for fiscal 2021, and if Simon is right about his company's strong financial position, healthy balance sheet, and continued growth, we should eventually profit from this trade.
Aphria is trading for rock-bottom valuations -- in its case, 2.7 times price-to-sales and 0.93 times price-to-book value -- despite growing its revenue by more than 100% in its 2020 fiscal year.
Also Aphria has a robust portfolio of vape products, with its Good Supply brand reaching No. 1 in popularity in three major provinces. The company's vape segment accounts for about 29% of the entire market in Canada. During fourth-quarter 2020, Aphria's recreational cannabis revenue grew to CA$56.7 million from CA$18.5 million in Q4 2019.
Aphria also has a growing international segment emphasizing operations in Germany and Latin America. One of the company's subsidiaries, CC Pharma, now imports and distributes medical marijuana to 13,000 out of about 19,000 retail pharmacies in Germany.
Combined, the company's net revenue increased from CA$237.1 million last year to CA$543.3 million.
The company's cash and investments of CA$500 million are more than enough to offset CA$129.6 million in long-term debt and CA$270.8 million in convertible-note liabilities.
Aphria’s stock price was up over $8 just before the company released its Q4 earnings and they’ve fallen sharply since then, finishing last week below $5. At a price-to-sales multiple of 2.7, Aphria’s not an expensive stock to own right now. And the company’s one of the few Canadian producers that’s consistently generated growth while also reporting a strong bottom line (its Q4 results were the exception, not the norm).
Also, as marijuana legalization progresses in the U.S. (there are five states voting on legalization this November) and across the globe, the cannabis industry is expected to grow exponentially.
With pot sales continuing to climb in Canada amid the pandemic, Aphria’s likely to have another good quarter in Q1. As long as it doesn’t record impairment expenses, its bottom should be much stronger. The stock is trading around where it was back in late May and now could be a great time to buy shares of Aphria.
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An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!