Comparing APHA and OGI’s Valuation Multiples


Jan. 16 2020, Updated 9:10 a.m. ET

Aphria (NYSE:APHA) and OrganiGram Holdings (NASDAQ:OGI) reported their earnings on Tuesday. For the quarter, Aphria beat analysts’ EBITDA estimate. However, the company missed analysts’ revenue estimates and lowered its fiscal 2020 guidance. To learn more, read Aphria Cuts 2020 Guidance, Stock Falls. The stock fell due to weak sales and the guidance cut. Aphria has lost 3.1% of its stock value since its second-quarter earnings. Investors’ optimism about the introduction of the new bill offset some of the declines. The new bill would allow CBD products derived from hemp to be marketed as dietary supplements.

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Meanwhile, OrganiGram reported impressive first-quarter earnings. For the quarter, the company’s revenue grew 103.2% sequentially and beat analysts’ estimates by 28.6%. The company’s EBITDA was 4.9 million Canadian dollars. OrganiGram’s management added that the profits will likely expand going forward. To learn more, read OrganiGram Posts Incredible Q1 Results, Solid Outlook. The stock rose due to the strong performance. Since the company’s first-quarter earnings, the stock has increased by 45.4%.

Now, we’ll discuss APHA and OGI’s valuation multiples. We have considered the forward EV-to-sales and forward EV-to-EBITDA multiples. Since the cannabis space is still in the early growth stage, not all of the companies have become profitable. So, we choose not to use the forward PE multiple.

APHA’s forward EV-to-sales multiple

As of Wednesday, Aphria was trading at a forward EV-to-sales multiple of 2.38x. Before the company reported its second-quarter earnings, it was trading at 2.33x. Aphria’s valuation multiple increased despite the lower stock price. Notably, analysts lowered their revenue estimates. As of Wednesday, analysts expect Aphria to report revenue of 742 million Canadian dollars in the next four quarters compared to 782.1 million Canadian dollars on Monday. Aphria’s management blamed the slower rate on new store openings, a decline in sales growth in Germany, and the temporary ban on vape products in Alberta for lowering its guidance. These issues could have also prompted analysts to cut their revenue estimates. Currently, Aphria trades lower than peers’ median value of 4.10x.

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OGI’s forward EV-to-sales multiple

The increase in OrganiGram’s stock price raised its valuation multiple. As of Wednesday, OGI was trading at a forward EV-to-sales multiple of 3.07x compared to 1.98x before reporting its earnings. Although the company beat analysts’ revenue expectations, it hasn’t raised its revenue estimates for the next four quarters. Analysts expect the company to report revenues of 222.05 million Canadian dollars in the next four quarters. Despite the surge in the valuation multiple, OrganiGram continues to trade below peers’ median value.

Comparing EV-to-EBITDA multiple of APHA and OGI

Although APHA stock has fallen since it reported its second-quarter earnings, its forward EV-to-EBITDA multiple has increased. As of Wednesday, the company was trading at a forward EV-to-EBITDA of 16.35x compared to 15.0x on Monday. Analysts have lowered their EBITDA estimates from 111.3 million Canadian dollars Monday to 107.8 million Canadian dollars. Lowering the company’s EBITDA guidance, increased expenses from third-party suppliers, and pricing pressure could have prompted analysts to cut their EBITDA estimates. The company has traded lower than its historical average value of 28.57x since the beginning of 2017.

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The surge in OGI’s stock price has increased its forward EV-to-EBITDA multiple. As of Wednesday, OrganiGram was trading at a forward EV-to-EBITDA multiple of 10.95x compared to 7.09x before its first-quarter earnings. Despite the impressive first-quarter performance, analysts maintained their EBITDA expectation at 62.40 million Canadian dollars. Although OrganiGram’s forward EV-to-EBITDA multiple has increased, it’s still trading below its historical average of 18.56x since the beginning of 2017.

In the above graph, you can see that Aphria trades above its peers’ average EV-to-EBITDA multiple of 11.33x, while OrganiGram trades below.

Cannabis sector is making a comeback in 2020

After a disastrous 2019, the cannabis sector is making a comeback in 2020. The ETFMG Alternative Harvest ETF (NYSE:MJ) and the Horizons Marijuana Life Sciences Index ETF (NYSE:HMMJ) lost 31.4% and 39% of their stock values in 2019, respectively. However, in 2020, MJ and HMMJ have increased by 9.5% and 10.7%, respectively, as of Wednesday. We expected the cannabis sector to bottom out last year. Read Did the Cannabis Sector Bottom Out in 2019? to learn more. OrganiGram and Aphria’s stock prices have increased by 27% and 1.5% YTD, respectively.


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