Is Aphria Stock A buy?

The big Canadian producers aren’t profitable. None of them beat analysis’ expectations in their last quarter except for one, Aphria.
How did Aphria manage to deliver strong quarterly results while its peers couldn’t? CC Pharma, the German medical cannabis distributor that the company acquired earlier this year, has turned out to be its crown jewel. Three-quarters of Aphria’s net revenue in its fiscal 2020 first quarter was generated by CC Pharma.
Some have complained that CC Pharma’s distribution revenue in Q1 slipped from the previous quarter. Aphria explained that the drop stemmed from “a change of strategy” that was made because of changes in Germany’s reimbursement model for medical cannabis. Although this strategy change resulted in lower revenue, it boosted earnings. Look for CC Pharma to continue to be Aphria’s crown jewel in the future. The company projects full-year fiscal 2020 net revenue will be between 650 million and 700 million Canadian dollars. CC Pharma is ecpected to contribute a little over half of total net revenue. If you are looking for a differentiating factor that makes Aphria a better pick than most of its peers, CC Pharma definitely makes a short list.

Growth Opportunities
There are several reasons to think that Aphria is in a good position for success beyond its CC Pharma operations. The retail environment in Canada should improve as Ontario and other provinces add more retail cannabis stores. “The opportunities for us in the retail market with additional stores opening up is tremendous,”says Aphria interim CEO Irwin Simon. In the company’s Q1 conference call.
Aphria also should be poised to win in the Canadian cannabis derivatives market. CFO Carl Merton estimates that vapes will eventually make up between 20% and 30% of the total adult-use recreational marijuana market in Canada with 10% to 20% split among cannabis-infused beverages, edibles, and other new products.

Sealing the Deal
If Aphria’s crown jewel and it’s growth opportunities aren’t enough to make the stock. Buy, perhaps it’s valuarltion could seal the deal. Aphria’s shares trade at less than seven times sales. That’s only a fraction of its major rivals’ price-to-sales multiples.
Aphria has the lowest market cap of the big five Canadian cannabis producers. But it claims the third highest production capacity. It ranks first in international sales (thanks largely to CC Pharma). It has the lowest valuation based on sales.

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