Cannabis Stocks: Is Aphria Stock Still a Strong Buy & Hold?

The cannabis industry has many fundamental issues that have been exacerbated by the COVID-19 pandemic. Aphria (NYSE: APHA), one of the largest cannabis companies (by market cap) has had its share of problems but is Aphria cannabis stock still a strong buy & hold?

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Since March, the cannabis stock has more than doubled and outperformed the broader market. However, as profitability has always been a matter of concern for cannabis stocks, Aphria continues to experience mixed sentiments among cannabis stock investors.

Mixed results stoke pessimism among investors

Aphria’s fourth quarter and fiscal year 2020 results released on July 29 weren’t well-received by investors. In Q4 Aphria’s net loss widened to CA$98.8 million compared to a net income of C$15.8 million in the same period last year. This is the second time that the company posted a loss in the past five quarters.

Investors were quick to react to the Q4 results and the massive sell-off that followed drove the stock 19% lower. However, the losses weren’t a result of operational inefficiency but a few one-time non-cash charges.

Even though the sudden losses were a bit shocking, Aphria’s revenue has continued to grow. In the fourth quarter, revenue climbed 18.4% year-on-year (YoY) – which is a concrete indicator of the strength in business amid the current pandemic situation.

Currently, its cash balance stands at a healthy CA$497.2 million and is enough to finance its expansion plans in the future. Aphria also repurchased CA$127.5 million of convertible notes during the fourth quarter.

New markets are the key to growth

The main focus of the cannabis industry is the sale of Cannabis 2.0 or edible products. This is a major growth area for Aphria and the cannabis heavyweight is strengthening its position in this segment.

Currently, the cannabis stock commands a major share in vaping products in Canada’s Ontario province. In addition, Aphria has carved a niche in the recreational cannabis market. Through its subsidiary, CC Pharma, a pharmaceutical importer, Aphria has managed to gain significant traction in Germany. The European Union is the largest medical marijuana market globally and Aphria is already making its presence felt there.

Is Aphria Stock Still a Strong Buy & Hold?

A strong business foundation is the main reason behind Aphria’s continued growth. Though its Q4 results had many investors on edge, that doesn’t mean that the company isn’t a worthwhile investment. Many cannabis stocks tend to be too pricey but Aphria’s current price point is much better than other cannabis stocks like Cronos Group and Canopy Growth Corp. Aphria’s forward P/S ratio of 2.4 is far greater than the 40+ P/S for Cronos and 16.6 for Canopy Growth. Aphria has higher net sales than it’s competitors and has experienced greater profitability – all with a reduced premium on valuation.

For these reasons, we believe this cannabis stock is still a strong buy & hold. In fact, Aphria is one of the best cannabis stocks investors can purchase right now.

Cannabis Stocks: Is Aphria Stock Still a Strong Buy & Hold?

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Cannabis Stocks: Is Aphria Stock Still a Strong Buy & Hold?