Is Aphria Stock a buy?
Many investors would say that Aphria (NASDAQ: APHA) is a constant performer in an industry where volatile stock movements are the norm. Down 10% this year, the pot stock has performed much better than the Horizons Marijuana Life Sciences ETF, which fell by 30% over the same period. And Aphria is nowhere near as bad of a short investment as Aurora Cannabis‘The share was aimed at new investors, which has collapsed to 81% since Jan. 1.
Aphria pulls out an uninspiring quarterly report that sent her stock into a dive. Investors should consider whether to buy shares of Aphria when it drops again, or if it could be the start of an even bigger drop. Let’s take a closer look at the recent results and find out why they haven’t sparked investor optimism.
A quick breakdown of results
Aphria took out her first quarter results 2021 on October 15, reporting positive adjusted earnings before income, taxes, depreciation and amortization (EBITDA) for the sixth consecutive period. Another highlight was its cannabis-related revenue for the period ended August 31, which stood at C $ 82.2 million, up 134% from the period of the previous year. . But the company’s total net revenue of C $ 145.7 million was down from the fourth quarter of 2020, for which Aphria reported net sales of C $ 152.2 million. First-quarter revenues were well below the C $ 159.6 million expected by analysts.
Aphria’s distribution revenues, which were C $ 82.2 million for the quarter, were down more than 17% from the fourth quarter to just under $ 100 million. Canadian dollars. The bulk of Aphria’s distribution activities come from its German distributor, CC Pharma, which represents 97% of total sales in this segment.
The pot company blamed the poor results on COVID-19 and cited a report from Health Canada, which said 70% of doctors were not seeing as many patients as before the pandemic. The company hopes that the decrease in visits has resulted in a reduction in prescriptions for medical marijuana. Aphria also highlighted supply chain issues, noting that the pandemic has negatively impacted suppliers in various countries.
Why the results weren’t good enough
In addition to missing analysts’ expectations, the other glaring negative was that Aphria suffered a net loss of C $ 5.1 million in the first quarter, compared to a profit of C $ 16.4 million in the first quarter. same period last year. Aphria reported a net loss in three of its last four quarterly results.
While the Adjusted EBITDA figure is encouraging, it can be difficult to gauge exactly what that means. Since it is a non-GAAP number, there is less consistency when evaluating one company against another on the basis of the metric, as there are no strict requirements for what is included in Adjusted EBITDA. And the list of “tweaks” can be significant.
In its first quarter results, Aphria noted the following adjustments to its net loss to arrive at Adjusted EBITDA: income taxes, finance charges, non-operating loss, amortization, stock-based compensation, fair value adjustments, transaction costs, developing activities and its distribution activity. In short, achieving a positive Adjusted EBITDA figure can sometimes be just an investor-focused exercise in profit management. This is why the accounting result is much more valuable than an adjusted EBITDA figure. This helps explain why achieving a sixth straight period of adjusted earnings is not enough to impress investors.
Another reason to dampen enthusiasm for Aphria is the company’s sales growth. Although net cannabis sales doubled from a year ago, they grew 18% more modestly from the fourth quarter. And Aphria’s adjusted cannabis gross margin declined 3.2%. The company noted that its value brand, B! NGO, helped increase sales this quarter, but at lower margins.
Why there is still reason to be optimistic
Aphria CEO Irwin Simon acknowledged that the company may not be the first to launch new cannabis products, but said: “I don’t mind being slower because that I don’t want to have something that consumers don’t have. want and I don’t want to make the same mistakes. ”Aphria still plans to launch more cannabis products, including drinks, as early as next year. Simon believes that the cannabis segment 2.0, as it is often called , could represent 20% of the total cannabis revenue of Aphria (today it represents 13%, only sales of vape products).
Simon also dropped a big teaser for investors, saying “Consolidation has to take place in Canada and there’s a chance we’re part of it.” Earlier this year it was rumored that Aphria was involved with Aurora Cannabis as part of a potential deal, although it appeared to fail. As marijuana stocks continuing to decline in value this year, this could be the perfect time for Aphria to find a discount partnership and accelerate its growth.
Should I buy Aphria shares?
Although Aphria has fallen below $ 5 in recent days (it was trading above $ 6 earlier this month), the stock is still far from its 52-week low of $ 1.95. But the price alone is not a sufficient reason to invest in Aphria, especially given the volatility of the marijuana industry. In the past, the company was an attractive buy because it seemed to be in a better position to generate profits than its peers, but that no longer appears to be the case as low margin products will only make things more difficult. for Aphria to put her accounting income back in the dark. And until that happens, I wouldn’t consider investing in the Ontario-based pot producer as its shares may continue to fall even more.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.