APHA: Aphria: Should Cannabis Investors ‘Buy the Dip’?

Aphria (APHA) reported its latest financial results before the market opened on October 15th and they came below analyst expectations. The market did not respond kindly, and the stock is down -22.6% since October 14th.

The company posted $145.7 million in net sales for the first quarter of 2021, which came in four percent lower than the previous quarter. Analysts were expecting revenue of $159.6 million.

Management stated that the COVID-19 pandemic had a significant impact on its medical cannabis sales in the international markets such as Germany, which offset substantial increases in overall cannabis revenues. The company also said that fewer in-person visits to physicians along with people being less inclined to go outside contributed substantially to the drop in revenues.

But, despite the weak sales figure, APHA did post a narrower-than-expected net loss of $5.1 million, or $0.02 per share, and adjusted earnings before interest, taxes, depreciation, and amortization of $10.0 million. This marks the sixth consecutive quarter of positive EBITDA. Another positive trend that continued was APHA’s net cannabis revenues. The company posted $62.5 million in the first quarter up from $53.1 in the quarter before.

Another important figure that I believe was overlooked was the fact that APHA continues to reduce production costs. The company’s cash cost per gram of dried cannabis dropped for the fourth consecutive quarter to just $0.87. As costs continue to decrease, this could provide a boost for the company, especially if there is a rebound in the market.

APHA’s Chairman and CEO, Dr. Irwin D Simon stated, “Our strong first-quarter results reflect the continued robust growth and development of Aphria’s adult-use cannabis brands in Canada. We are consistently taking a diversified approach to our innovation, strategic partnerships, global expansion, and corporate citizenship to fuel sustainable, long-term growth. We believe that the strength of our balance sheet and cash position, combined with our consistent focus on our highest-return priorities, will generate sustainable long-term value for all stakeholders.”

While the stock has taken a hit, I believe investors have got ahead of themselves when it comes to expectations. Of all the Canadian licensed procedures, APHA has shown the most consistent profitability which is very important in this market. The company has not made high-priced acquisitions like its peers, nor does it carry a large amount of goodwill.

APHA has a healthy balance sheet with a significant amount of cash, along with a diversified international revenue stream in one of the top global cannabis markets (Germany). Overall, I believe the market may be overreacting to their most recent earnings release and that this dip offers a buying opportunity.

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(Disclosure: The author is long APHA)

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APHA shares were trading at $4.56 per share on Tuesday morning, down $0.12 (-2.56%). Year-to-date, APHA has declined -12.64%, versus a 8.37% 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...