What should investors think about Aphria’s unexpected quarterly loss?


There aren’t many marijuana businesses that have remained profitable over the past year. While most of the big names in the industry have seen their stocks plummet along with continued losses, one of the few exceptions is the Canadian cannabis producer. Aphria (NASDAQ: APHA).

To the surprise of many investors, however, the company reported an unexpected net loss in its recent fiscal fourth quarter. In response, the stock fell nearly 20% after the announcement, a loss that has many investors questioning whether this pot stock is still worth a place in their portfolio.

Let’s look a little deeper and see what exactly is going on.

Image source: Getty Images.

What happened?

For the most part, Aphria has built a reputation as a profitable cannabis company. Thanks to its German subsidiary CC Pharma, Aphria has managed to do well for about a year. The last time Aphria failed to make a profit was in its fiscal second quarter, when the company reported a loss of C $ 7.9 million.

By comparison, Aphria’s recent fourth quarter results showed a staggering net loss of C $ 98.8 million, making it one of the worst quarters in recent company history. However, most of these losses were due to one-time expenses; About C $ 64 million of the total came from non-cash impairment charges on Aphria’s international assets in response to COVID-19.

Understand what’s going on

Diving deeper into these results, Aphria’s situation doesn’t look so bad. Its overall revenue continued to grow despite this pandemic, with net revenue up 5% from the previous quarter. Additionally, Aphria is becoming even more efficient at producing cannabis, which she was already quite good at. Its cash cost to produce dried cannabis fell to C $ 0.88 per gram, also down 5% from the previous quarter.

While that might not sound like much compared to a loss of C $ 99 million, it’s a pretty solid sign that Aphria’s core business is doing well despite this pandemic. In comparison, the largest Canopy growth (NYSE: CGC) considering his net income decline 13% between its third and fourth quarters. This is in addition to a net loss of C $ 1.3 billion that the company reported in the fourth quarter.

At the same time, Aphria is in a fairly good cash position, so taking this one-time financial blow won’t shake the business much. The company has about C $ 497.2 million in cash and cash equivalents after reporting this net loss, which is pretty good compared to most other companies in this industry.

Image source: Getty Images.

Should you buy Aphria when it’s not expensive?

Despite being profitable this year (for the most part), Aphria has always been a relatively cheap stock by the standards of most cannabis companies. Its price / sales (P / S) ratio currently stands at 3.1. Canopy Growth is trading at a P / S ratio of 21.3 despite a rather poor quarter overall. same Cannabis Aurora, one of the most battered cannabis companies on the market with more than its fair share of financial woes, has a P / S ratio of 4.2.

It is quite rare to find a company that is both financially sound and cheaper than its competitors. This is already the mark of a good value investment – but there are other things worth mentioning here as well.

First, Aphria received crucial certifications in Germany that would allow the company to export Canadian cannabis for German distribution. These export sales are expected to further supplement its distribution revenues from CC Pharma, which already represents the majority of Aphria’s overall revenues.

Management has also said it may also consider buying out distressed assets during this crisis. This might be a good idea for Aphria, as there are likely a lot of cannabis assets being sold by companies now struggling amid coronavirus-induced business downturns.

As Warren Buffett’s old saying goes, “Be fearful when others are greedy and greedy when others are afraid. This unexpected loss on Aphria’s part isn’t that big of a deal in the long run, especially when all of her other financials are pretty healthy. As such, investors shouldn’t be overly concerned about Aphria just yet. In fact, I would say it is now a very good buying opportunity for investors looking to find solid value stocks in this market climate.


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