Is Aphria a Good Buy in December?


Dec. 26 2019, Updated 7:44 a.m. ET

As of December 23, Aphria (APHA) was trading at $6.42 Canadian dollars. So far, this year, the company’s stock has fallen by 18.2%. Also, the company was trading at a discount of 55.3% from its 52-week high of $14.37 Canadian dollars. This is 29.7% higher than its 52-week low of $4.95 Canadian dollars.

In the last two quarters, Aphria reported a positive EBITDA. Only a few of the cannabis companies have managed to report positive EBITDA so far. Also, the company’s EBIT was higher than analysts’ expectations in the last two quarters.

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However, the weakness in the cannabis sector due to several ongoing issues. These include the recent vaping-related deaths, decline in cannabis demand, pricing pressure, and delay in the opening of new retail stores in Canada. They have all dragged the company’s stock price down. Having discussed the stock performance of Aphria, let’s look at analysts’ expectations for fiscal 2020 and 2021.

Analysts’ expectations for Aphria

After reporting impressive first-quarter earnings of fiscal 2020, Aphria’s management reiterated its fiscal 2020 guidance. The management expects its fiscal 2020 revenue to be in the range of $650 million—$700 million Canadian dollars. Also, they expected the company to report EBITDA in the range of $88 million—$95 million during the fiscal year.

Analysts expect Aphria’s revenue to rise 149.3% to $591.0 million in fiscal 2020. For fiscal 2021, they project the company’s revenue to grow by 35.7% in fiscal 2021 to $802.2 million. They also expect the company to report EBITDA of $41.7 million Canadian dollars in fiscal 2020 and $127.6 million in fiscal 2021.

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In November, Aphria got a cultivation license for its Aphria Diamond facility from Health Canada. The facility increased Aphria’s production space by 1,300,000 square feet to 2,400,000 square feet. With the addition of the Aphria Diamond facility, the company’s total annualized production capacity rose to 255,000 kilograms. So, we expect the new production facility and the opening of new retail stores in Canada to drive the company’s revenue.

With its proprietary automation technology and scale, Aphria expects to make cannabis at the lowest cost in the industry at its Diamond facility. We expect a decline in production costs and the introduction of higher-margin Cannabis 2.0 products to improve the company’s profitability.

Analysts’ opinions and recommendations

Aphria reported a strong performance in its first-quarter earnings of fiscal 2020 on October 15. Following its impressive performance, GMP Securities and Jefferies are bullish on the stock, as reported by MarketWatch. However, Brett Hundley of Seaport Global Securities said that the management’s guidance for fiscal 2020 was too optimistic. Thus, his estimates fell short of that. But he added that the company could prove him wrong.

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Analysts are bullish on Aphria. Of the 13 analysts, three have given a “strong buy” rating, while seven have given a “buy” rating. Of the remaining three analysts, two are favoring a “hold” rating, while one analyst favors a “sell” rating. Overall, analysts have a 12-month price target of $12.45 Canadian dollars. It implies a 12-month return potential of 94% as of December 23.

Aphria outperformed its peers

Despite falling 18.2% this year, Aphria outperformed its peers and the cannabis ETFs. Year-to-date, Canopy Growth (WEED) (CGC) and Cronos Group (CRON) fell 29.1% and 35.8%, respectively. Also, Aurora Cannabis (ACB) shrunk by 60.9%. The cannabis ETF, the ETFMG Alternative Harvest ETF (MJ), shrunk by 32.1% during the same period.

With the investors’ focus shifting towards getting profitable, we expect Aphria to do well in 2020. Already, the company has reported positive EBITDA in the last two quarters. So, analysts are expecting the company to maintain it going forward.

In comparison, analysts expect CGC to report positive EBITDA in the second quarter of fiscal 2022, which ends in September 2021. Meanwhile, ACB is projected to report positive EBITDA starting in the second quarter of fiscal 2021, which ends in December 2020. For more cannabis-related news, visit 420 Investor Daily.


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