Citron sees eight-dollar per share upside for Aphria Inc.
By Jacqueline Havelka
Dec 19, 2018
Is there an upside to beleaguered cannabis stock Aphria Inc. (TSX:APHA) (NYSE:APHA)? Well-known short seller Andrew Left from Citron Research thinks so, and investors seemed to follow his lead as Tuesday’s closing NYSE bell saw the stock rise nearly 8 percent from the previous day.
Left was very positive about Aphria stock, saying he is bullish on the cannabis stock and predicting that the stock price could even reach $8 per share by New Year’s Eve. If that occurs, the stock would be up nearly 50 percent from its mid-December price — not bad for two weeks of performance.
Why Does Left Love Aphria?
Why is Left so head-over-heels in love with Aphria? First, the company has a very attractive valuation of $1.5 billion about its Big 5 peer group of Canopy ($10.7 billion), Tilray ($7.3 billion), Aurora ($5.6 billion) and Cronos ($2.1 billion).
Second, Luck thinks that a major partnership – or a total buyout – is imminent for Aphria. Most of the major pot stocks have already announced strategic partnerships, like Cronos’ teaming with big tobacco company Altria. Aphria joins Tilray and Aurora as the triad that has yet to announce their big deals. Tilray just announced an expanded collaboration with Novartis, but Left pointed out that the valuations for both Tilray and Aurora are currently much too high to entertain any major deals. Aphria is different, and perhaps is inching closer to its own big announcement.
On Tuesday, Aphria announced an expansion of their previously heralded agreement with Rapid Dose Therapeutics Inc. (CSE: DOSE). In the new arrangement, Aphria expands into German territory, having been granted exclusive rights to license, manufacture, distribute and sell RDT’s QuickStrip™ delivery technology there.
Aphria is already a global cannabis leader and has a presence on five continents in 10 countries. But the German cannabis market is quickly evolving into a major market and is therefore highly sought after in the industry. It seems Aphria has made a very strategic move to capture a leading market presence in the country. The agreement also allows Aphria the option to add future international markets as the opportunities arise.
The match between RDT and Aphria seems like a good one. Aphria is known for setting the standard for low-cost production of pharmaceutical-grade cannabis by incorporating the latest technologies. RDT’s innovative Quickstrip consistent dosage oral drug delivery system pairs nicely with Aphria’s expanding medical cannabis product line. In a few short months, Aphria says it will be distributing CBD-only Quickstrips in Germany.
Left speculated on the possibility of an Aphria buyout. Using the 12-month revenue figure of $35 million and a benchmark of MedReleaf’s multiples valuation when acquired by Aurora, Left stated that Aphria could have an $11 share value in a similar situation.
My initial reaction to the @CitronResearch 'research' is that it's poorly constructed. The basis for valuation addressed the wrong concerns. Few people questions $APHA value proposition or CPG part. potential; it's about corp. stewardship/trust. Canopy is not purchasing Aphria.
This week’s positive press is a welcome sight for Aphria, a company that just started trading on NYSE in early November, and one that has been beleaguered by recent price declines and negative press. Aphria has lately been accused of hiding information and misreporting of financial information regarding Latin American assets. All of these issues led to Aphria being named as a top stock to short. The market response was harsh and swift, with Aphria losing approximately $1 billion in value after the comments were made.
If the accusations turn out to be true, Aphria could be pulled from public trading, but the company described the accusations as “misrepresentations and distortions” in a press release. Aphria has questioned the motives of Gabriel Grego and Nate Anderson who made the allegations.
The company is now traveling the road of trying to regain investor trust, and some analysts like Cormark’s Jesse Pytlak remain positive on Aphria’s long-term market position but think that the stock will remain volatile while the company regains that credibility.
However, analysts like Left are not discouraged. He cautions investors not to become caught up in the noise, but instead look at the bigger picture. He describes Aphria as a company and stock that is “compelling on all metrics.” Most Wall Street analysts agree with Left, with the large majority remaining bullish on the stock and agreeing on a $14.50 target price which translates to an upside of about 160 percent.
Will Aphria investors ring in the new year celebrating a major stock price increase? We have two weeks to find out if Left is right.