This Metric Shows Why Aphria Inc Is a Top Pot Stock…

Why APHA Stock Could Continue Delivering Big Returns

To pot stock investors, Aphria Inc (NASDAQ:APHA) should be a familiar name.

The Leamington, ON, Canada-based cannabis producer was one of the first companies in the industry to jump to a major U.S. stock exchange, listing its shares on the New York Stock Exchange (NYSE) in November 2018.

Then, in May 2020, Aphria announced that it would transfer its U.S. stock exchange listing from the NYSE to the Nasdaq Global Select Market. Its shares have been trading on the Nasdaq since June 5.

In an era when a lot of pot stocks are still trading over the counter in the U.S., Aphria stock being listed on a major U.S. stock exchange has brought it more exposure and liquidity.

Even institutional investors—which are generally not known for being keen on pot stocks—have started warming up to the company.

Earlier this year, Aphria closed a CA$100.0-million strategic investment from an institutional investor. The proceeds were intended to be used to finance Aphria’s international expansion, working capital, and general corporate purposes. (Source: “Aphria Inc. Announces Closing of $100 Million Strategic Investment From Institutional Investor,” Aphria Inc, January 31, 2020.)

Of course, 2020 has turned out to be a very different year than what many companies were anticipating. With the outbreak of COVID-19—which quickly turned into a global pandemic—many regions imposed lockdowns, meaning numerous businesses had to shut down. And even after many lockdowns have been lifted, a lot of business activities simply haven’t returned to their pre-pandemic levels.

Aphria, though, has managed to grow its business along the way.

In the fourth quarter of the company’s fiscal year 2020, which ended May 31, it generated CA$152.2 million in net revenue, representing an 18% increase year-over-year. (Source: “Aphria Inc. Announces Fourth Quarter and Fiscal Year 2020 Results,” Aphria Inc, July 29, 2020.)

Aphria is one of the lower-cost marijuana producers. In the fourth fiscal quarter, the company’s cash cost to produce one gram of dried cannabis was CA$0.88, marking a five percent decline sequentially.

Fast-forward three months and we see that, in the first quarter of Aphria’s fiscal year 2021, which ended August 31, 2020, it earned net revenue of CA$145.7 million, marking a 16% increase from a year ago. (Source: “Aphria Inc. Announces Record Adult-Use Cannabis Gross Revenue in First Quarter Fiscal Year 2021 and Sixth Consecutive Quarter of Positive Adjusted EBITDA,” Aphria Inc, October 15, 2020.)

Meanwhile, the company’s cash cost to produce one gram of dried cannabis continued to decrease to CA$0.87 in the quarter.

Now, we know that legal pot is a fast-growing industry. But keep in mind that these two fiscal quarters—which ran from March to August 2020—were an extremely challenging operating environment for most industries. Aphria’s ability to deliver year-over-year top-line growth during this period is a very clear sign of strength.

And here’s a metric that really makes Aphria Inc stand out—adjusted earnings before interest, tax, depreciation and amortization (adjusted EBITDA).

In the first quarter of Aphria’s fiscal year 2021, the company generated CA$10.0 million in adjusted EBITDA. This not only represented a 17% increase from the prior quarter, but also marked Aphria’s sixth consecutive quarter of delivering positive adjusted EBITDA.

Because the legal cannabis industry is still at an early stage, it’s not unusual to see operators incur adjusted EBITDA losses quarter after quarter. By achieving positive results on this critical operating metric consistently, Aphria shows why it deserves to be one of the top picks for pot stock investors.

Aphria Inc (NASDAQ:APHA) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

Of course, even though Aphria Inc has delivered solid operating and financial performance, its shares are not immune to the ups and the downs of the market.

In fact, pot stocks have been some of the most volatile names in the market. So, unsurprisingly, when the market entered a pandemic-induced sell-off earlier this year, Aphria stock plunged, too.

But as we can see from its chart, APHA stock was able to recover from that downturn. And thanks to the post-election rally in recent weeks, it’s now trading above its pre-pandemic level.

If the company can continue to grow its business at a decent clip, it would give market participants a good reason to keep Aphria stock on an uptrend.