Aphria (APHA) was trading almost 8% higher today after Jefferies initiated a “buy” rating on the stock and gave it a price target of 15 Canadian dollars. Aphria closed at 8.8 Canadian dollars on May 23, which reflected a potential upside of nearly 70%. This development explains why Aphria has risen so much today.
According to Jefferies, Aphria looks relatively cheap given that its global growth outlook has remained strong. Jefferies has also noted that the company’s governance is improving—especially after it was called out on its Latin American acquisition, which resulted in it first defending and then writing off these assets in its most recent quarter. The development spooked investors, and the stock experienced selling pressure.
Jefferies has also said that it’s impressed with the company’s Canadian recreational cannabis segment, but it’s expressed concerns about its US penetration, which Jefferies believes is lagging its peers’.
For readers of Market Realist, this shouldn’t come as a surprise, as we’ve been putting out valuation updates almost every other week. Our most recent update was on May 22. You can read more in How Do Cannabis Stocks’ Valuations Stack Up in May? In that seven-part series, which compares the valuations of 12 cannabis companies, we noted that Aphria’s forward EV-to-sales (enterprise value-to-sales) multiple was trading at a discount of 2.9x to the median. In comparison, HEXO (HEXO) was trading at a forward EV-to-sales multiple of 5.4x, and CannTrust (CTST) was trading at a multiple of 4.2x.