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Is Aphria a Buy Under $7?

Certain industries are outperforming as the market is anticipating a change in regulation under a new political regime. Current polling shows that Democrats are favored to take control of the Senate, and former VP Joe Biden is a 65% favorite to win the election. One result will be the more favorable treatment of cannabis. Aphira (APHA) would certainly see big gains as a result. 

APHA is a leading cannabis brand with a license to cultivate, process, sell medical and adult-use cannabis, derivative extracts, and other related products. Headquartered in Canada, the company has operations in Germany, Italy, Malta, Colombia, and Argentina. APHA’s CBD oil, indica and sativa products won seven Canadian Cannabis Awards last year. Its vape segment has 29% market share in Canada.

APHA follows a direct to patient model for the medical distribution of cannabis in Canada. For international distribution, the company uses a wholesale strategy via building partnerships in the industry.

Focusing on untapped opportunities and backed by the latest technologies, APHA is well-positioned in the cannabis industry. By following a diversified approach to innovation, strategic partnerships, and global expansion, the company strives to take a leading position in the industry. APHA’s unique business model coupled with several other factors has helped it earn a “Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates APHA:

Trade Grade: A

APHA is currently trading higher than its 50-day and 200-day moving averages of $4.65 and $4.22, respectively, indicating that the stock is in an uptrend. The stock’s 37.2% return over the past three months reflects a solid short-term bullishness.

APHA’s total revenues increased by 18% year-over-year in the fiscal fourth quarter ended May 2020. Net revenue of $543.3 million for the full-financial year indicates year-over-year growth of 129%. This revenue growth was due to the increases in net distribution revenue and net cannabis revenue. For the full year, the sale of adult-use cannabis increased by 307% from the year-ago value.

APHA ended the fourth quarter with a strong balance sheet and liquidity, including $497.2 million of cash and cash equivalents to fund planned Canadian and International growth.

On October 7th, the company announced the completion of its first shipment of dried flowers from its Aphria One EU GMP facility to its wholly-owned German subsidiary, CC Pharma, a leading distributor of pharmaceutical products to more than 13,000 pharmacies in Germany. “Our first EU GMP shipment into Germany represents another significant milestone for Aphria Inc., one that strengthens our position as a leading cannabis company in Germany and the European Union,” said APHA CEO Irwin D. Simon.

On August 4th, the company announced that it has entered into a Strategic Supply Agreement with Canndoc Ltd. a subsidiary of InterCure Ltd., one of Israel’s largest and most established medical cannabis producers.

Buy & Hold Grade: A

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, APHA is well-positioned. The stock is currently trading just 1.1% below its 52-week high of $6.44. 

APHA has gained 880% over the last five years, which can be attributed to its solid revenue and earnings growth. The company’s revenue grew at CAGR of 296.8% over the past three years, while EBITDA rose at a CAGR of 132.5% over this period.

In January 2019, APHA acquired CC Pharma, making it a leading exporter and distributor of EU-pharmaceuticals for the German market.

Peer Grade: A

APHA is currently ranked #45 out of 239 stocks in the Medical-Pharmaceutical industry. Other popular stocks in the Medical-Pharmaceutical group are Abbott Laboratories (ABT), Novo Nordisk A/S (NVO), and Zoetis Inc. (ZTS).

ABT, NVO, ZTS have gained 29.4%, 29.2%, and 27.9% year-to-date, respectively, compared to APHA 22% returns over this period. However, APHA’s growth potential and ongoing expansion plans to penetrate the European markets could help it gain enough momentum in the upcoming months.

Industry Rank: B

The Medical-Pharmaceutical industry is ranked #3 out of the 123 industries in the universe. The pharmaceutical and overall health sector has been one of the most coveted industries amid the coronavirus outbreak.

This makes sense, as for the development of a vaccine or a treatment, a huge amount of investments has already been made in this industry by both the federal government and private organizations.

Overall POWR Rating: A (Strong Buy)

APHA is rated “Strong Buy” due to its impressive past performance, short-and-long-term bullishness, and impressive financials, as determined by the four components of our overall POWR Rating.

Bottom Line

The company has outshined its competitors in the industry by achieving strong revenue and earnings growth. It also has a decent cash reserve at its disposal. APHA is a good bet for investors below $7, given its solid growth momentum and favorable analyst sentiment.

APHA has an average broker rating of 1.08, indicating favorable analyst sentiment. Out of 12 Wall Street analysts that have rated the stock, 11 rated it “Strong Buy”. For the year ending May 2021 and May 2022, the market expects APHA’s revenue to grow by 32.1% and 21.12%, respectively.

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APHA shares rose $0.04 (+0.66%) in after-hours trading Tuesday. Year-to-date, APHA has gained 16.86%, versus a 10.34% rise in the benchmark S&P 500 index during the same period.

About the Author: Madhavi Taneja

Madhavi is a seasoned financial analyst with a focus in valuing early-stage technology companies and evaluating potential mergers and acquisitions. After majoring in economics, she developed a deep understanding of investment strategies while working with EX Service.


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