Aphria: Target Price and Valuation Update

As of Tuesday, Aphria (APHA) was trading at 9.51 Canadian dollars. The stock has increased 37.8% since it reported its fourth-quarter earnings on August 1. The company outperformed analysts’ top-line and bottom-line estimates during the quarter. Following the fourth-quarter earnings, the company provided an optimistic outlook for fiscal 2020. The impressive fourth-quarter performance and optimistic outlook drove Aphria’s stock price.

Aphria’s valuation multiple rose

Aphria’s higher stock price raised its valuation multiple. As of Tuesday, the company was trading at a forward EV-to-sales multiple of 2.33x—compared to 1.70x before the announcement of its fourth-quarter earnings. Despite the higher valuation multiple, the company is still trading lower than its average forward EV-to-sales multiple of 3.48x over the past seven months. On the same day, the median forward EV-to-sales multiple for nine Canadian cannabis companies was 5.58x.

Aphria’s YTD stock performance

The recent spike in Aphria’s stock price has brought the company’s return for 2019 into positive territory. As of Tuesday, the company has returned 25.5%, YTD (year-to-date). Aphria has outperformed the broader equity market. During the same period, the S&P 500 Index and the ETFMG Alternative Harvest ETF have returned 15.0% and 13.2%, respectively. Aurora Cannabis, Canopy Growth, and Tilray’s stock prices have increased 37.7%, 17.6%, and -39.7%, YTD, respectively.

Aphria: Target Price and Valuation Update

Analysts’ recommendations

Since Aphria reported its earnings, three analysts have changed their target prices.

  • CIBC raised its target price from 6.5 Canadian dollars to 7 Canadian dollars.
  • Haywood Securities lowered its target price from 16 Canadian dollars to 14.50 Canadian dollars.
  • Brayan Garnier cut its target price from 23 Canadian dollars to 18 Canadian dollars.

In the above graph, you can see that analysts’ average target price has been falling since April. On average, analysts have given Aphria a 12-month target price of 14.94 Canadian dollars, which implies an upside potential of 57.1%.

Also, analysts are favoring a “buy” recommendation for Aphria. Among the 12 analysts that follow Aphria, 75% recommended a “buy,” 16.7% recommended a “hold,” and 8.3% recommended a “sell.”

Outlook

For fiscal 2020, analysts expect Aphria to report revenues of 695.3 million Canadian dollars—a rise of 193.2% from 237.1 million Canadian dollars in 2018. The company’s management has provided revenue guidance of 650 million–700 million Canadian dollars for fiscal 2020.

The company became profitable in the last quarter. Aphria reported net profits of 15.8 Canadian dollars. However, for fiscal 2020, analysts expect the company to incur a net loss of $25.1 million.