Across the board, many cannabis stocks were sold off to fresh 52-week lows in the past couple of months. In addition to the Covid-19 crisis, most cannabis companies are suffering from lack of liquidity, slow revenue growth, and overall uncertainty around the future of the cannabis industry as a whole.
Profitability, or a lack thereof, has come to the forefront of most cannabis investors’ concerns.
Therefore, it’s prudent that investors focus on a few key metrics when selecting potential cannabis companies to invest in. Those factors include a healthy balance sheet, substantial revenue generation, margins, and sales growth. The longer the Covid-19 crisis persists, the less capital many of these struggling cannabis companies will have in order to continue operations.
So cash becomes extremely important, but cash is only a safety net for companies that can generate profits. For companies that have significant amounts of cash but are still losing money, eventually, the cash is going to run out if profitability is not achieved.
With that in mind, here are three reasons why we feel that Aphria (APHA) is one of the best companies in the sector right now to take a look at.
Profitability – APHA has enjoyed four consecutive quarters of positive EBITDA. This means a lot because while many companies are consistently losing market capitalization, APHA will keep improving its balance sheet if profitability continues. This also proves the success of their business model and their ability to adapt to whatever market conditions are thrown at them.
Balance sheet strength – The company also has a cash balance of more than CA$500 million to utilize when the economy starts back up again. We know that right now many companies are trading at extremely low valuations and APHA will have the potential to snatch up some of these businesses for pennies on the dollar. Even if the company does not go on an acquisition spree, they will have the cash to sustain almost anything that’s thrown at them especially if they continue to generate profits. Having adequate cash puts shareholders at easy without having to worry about the company continuing to dilute their shares in order to survive.
Analysts believe in the company – It’s very important to point out that APHA currently has 5 buy ratings on the stock and 2 hold ratings. The consensus estimate from analysts regarding APHA shares forecast that the stock should rise 40% to hit $5.26 within a year’s time. This indicates a very healthy upside for any investors who is considering APHA right now. We feel that having analysts on your side in a market plagued with bearish sentiment is extremely important for attracting new investors when things return back to normal.
Overall, it is our opinion that APHA is one of the best-positioned cannabis companies now in the current market and is positioned for a successful future. The companies that are able to prove themselves during tough economic times should also be able to excel as the economy gets back on its feet.
(Disclosure: The author is long APHA)
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APHA shares were trading at $3.65 per share on Tuesday morning, down $0.09 (-2.41%). Year-to-date, APHA has declined -30.08%, versus a -10.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...
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