Yesterday Aphria (APHA) reported impressive first-quarter earnings before the opening bell. After their last quarter many investors had high hopes that Aphria could deliver a second profitable quarter and they did just that. The company reported revenues of $126.1 million which was an increase of over 800% compared to the same quarter a year ago. What was even more exciting was the fact that they still managed to pull in over $90 million in revenue from Germany, and their Canadian revenue numbers are growing as well.
Although Aphria does not lead the industry when it comes to production capacity, partnerships, or research and development, they have done a fantastic job at perfecting their business model. Aphria has been really posting some impressive numbers, while many of the other large cap cannabis stocks, including Aurora, Canopy, and Hexo, have provided sub-par guidance over the recent quarters.
Just because a company is not the largest cannabis company, does not mean that it can’t be more efficient and produce better results for its investors. It’s clearly evident that in order to grow revenues dramatically, companies need to look outside of Canada for opportunities and Aphria can thank their international efforts for the majority of their revenue. We feel that Aphria being one of only 3 companies in Germany with a license has contributed heavily to their recent success and this trend should continue.
Many investors might be wondering why the other big names in the sector are not able to produce Aphria-like results. I believe this all comes down to their time frame and horizon. Many of the large-cap companies are investing heavily in research and development which could pay off immensely in the future, but the keyword is… could.
Investors do not like uncertainty, they like numbers, like generating $126.1 million with positive EBITDA kind of numbers. Until we see the other companies tone down future investment to please current investor needs now, we don’t really expect a huge rally in the other cannabis stocks. That said, Aphria could be the first stock that breaks away from the pack if they keep posting profitability and increased guidance. It was widely expected that after legalization in Canada it would be a tougher environment when all the hype died down, and that is exactly what we are seeing. Companies need to lead with revenue and keep a balanced approach to future growth and we feel that Aphria has perfected that combination for now.
It’s hard to say what’s next for the sector, but if more companies can learn from Aphria and how real revenue numbers are rewarded on the market than we might have a chance at a recovery if during this earnings season the tone changes. Aphria remains one of our favorite companies within the sector for the simple fact that they are the first profitable company.
(Disclosure: The author owns shares of Aphria)
APHA shares were trading at $5.01 per share on Wednesday morning, down $0.42 (-7.73%). Year-to-date, APHA has declined -11.95%, versus a 21.19% 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...