Aphria (TSX:APHA) reported strong fourth-quarter results that gave the stock a 30%+ lift on the day. Although this did not help other cannabis stocks, investors may want to take another look at Aphria.
Aphria’s Q4 GAAP EPS of $0.05 beat expectations by $0.15. Revenue grew 10-fold (969%) Y/Y to $128.6 million. These impressive earnings will put an end to the downtrend in the stock. Volume spiked to ~35 million shares on Aug. 2 and establishes an influx of bullish investors.
Unless profit-taking pulls the stock lower, shorts will have trouble closing out their position at a profit.
The company ended the year with cash and liquid securities worth $571 million. Its 5.25% convertible senior note offering brought in a net $335 million.
Fundamentals are strong as Aphria leverages its core capabilities. It restructured its business to focus on quality, employee safety, lower costs, and accountability.
For example, it invested to cut its packaging material while producing the highest premium products. It planted more than 200,000 plants in the newly expanded Aphria One.
The $1-billion run rate is achievable. This assumes ASP (average selling price) holds and margin compression is low.
Your Takeaway
The $1-billion cannabis sales rate in 2020 values the stock at just one times sale when the stock is $7. This could prove too low. Cannabis investors should look at Aphria first before considering the other speculations in the sector.
