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Aphria Inc. is a profitable, undervalued, inconsistent, unsure play in the marijuana stock market

By Jacqueline Havelka
Nov 09, 2018

Since Aphria Inc. (TSX:APHA) (NYSE:APHA) commenced trading on the New York Stock Exchange recently, some analysts and industry insiders now argue that the company is undervalued, even with the stock trading at nearly 70 times forward sales. Some experts state that due to the move to the NYSE, investors should see an increase in Aphria’s liquidity, though not all analysts agree.

For certain the move should increase volume trading and valuation, as well as the company’s global exposure, perhaps even in the Latin American and European markets. In particular, the move will likely mean that more value investors will begin to delve into the company and that activity should, in theory, drive more demand for the stock and result in an increased share price.

[Cannabis legalization inches forward in Mexico]

Aphria has other indicators in its favor. The company’s gross profit margin of around 25 percent is much larger than most competitors, some of whom are trading at anywhere from 85 times to 250 times sales. Additionally, in 2018 alone, Aphria’s revenue grew by 80 percent. In a global marijuana market expected to grow at a rate of nearly 35 percent per year to reach $146 billion, Aphria is well poised to reap the rewards.

Still, it’s not all upside when it comes to Aphria. The Leamington-based cannabis operator was one of the first companies to falter following this summer’s run-up in the cannabis industry, and they spent most of 2018 struggling to keep investors happy.

And while the entire sector has been down following an industry-wide sell-off sparked by the legalization of cannabis in Canada, Aphria consistently fails to live up to its promise, no matter what the overall market conditions are in the sector.

 

Is Aphria Inc. a long-term play?

While there is no doubt that Aphria is well-established in their C-suite, and the company remains one of Canada’s top Licensed Producers, whether or not they’re a buy compared to other marijuana stocks remains to be seen.

Many analysts do still rate Aphria a buy, and tout the stock as excellent for buy-and-hold investors, despite the recent sell-off of other stocks in the marijuana sector. Recently, Aphria rebounded well and had largely weathered that storm. But the company has been too inconsistent over the past 12 months for anyone to make a solid call on them at this point.

[Heritage Cannabis acquires Cannacure Corp. as new CEO continues to make moves]

Aphria is profitable, something that has eluded many other companies in the space. In fact, they just reported solid first quarter 2019 earnings with a 117 percent increase from the same period last year. But, again, profits have never been the issue with this company.

 

What the future holds in Leamington

Aphria recently took several strategic steps to secure its global position. They started at home in Canada by expanding their Leamington, Ontario facilities (to the tune of $55 million) and signing supply agreements with every Canadian province, guaranteeing a distribution channel that reaches nearly 100 percent of Canada’s population in the process.

In the wake of the legalization of cannabis in Canada last month, Aphria launched a new portfolio of recreational brands.

[Organized crime’s alleged ties to legalized cannabis in Canada]

Using the “strength in numbers” approach that so many in the cannabis industry are doing, Aphria entered into a joint venture with Perennial a couple of months before Canada’s big day. Perennial has developed consumer-driven brands for some of the world’s biggest companies.

Last week, Aphria announced an exclusive agreement with Rapid Dose Therapeutics; together, the companies will bring the innovative Quickstrip oral thin strip to both the medical and recreational cannabis markets. Rumors abound as to additional partnerships, with the likes of Altria Group Inc (NYSE:MO) and Diageo plc (NYSE:DEO).

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