Should Aphria (TSX:APHA) Investors Be Panicking Right Now?

These past few months have been a rough ride for Aphria (TSX:APHA)(NYSE:APHA) investors. After reaching a peak closing price of $14.21 in February, the stock began sliding later that month, with the downtrend accelerating in April. By May 17, the stock was trading at just $9.19 — a 35% decline from its peak price.

The decline in Aphria’s share price comes after a brutal 2018 for the company, which saw it the target of short attacks, lawsuits, and even hostile takeover attempts. Earlier this year, it appeared that Aphria had brushed off the last of its woes, after Green Growth Brands announced that it was dropping its hostile bid against the company. Now, however, it looks like Aphria is facing a whole new — and potentially more troubling — set of problems.

Why Aphria stock is falling

Aphria’s stock selloff is likely related to uninspiring earnings figures that the company recently released. Although the gradual cooling off from February to April is hard to explain, the steeper April-June selloff occurred around the same time that the company released an earnings report showing that its recreational sales had been declining.

Specifically, the company reported 35% lower recreational pot revenue than it had in the prior quarter. Although the company’s revenue grew 600% year over year in that same quarter, a decline in recreational sales is a big concern, since this product category is the main catalyst expected to drive cannabis sales growth in the future. It’s also worth noting that in the same quarter Aphria posted a massive $108 million net loss, up from $12 million in the same quarter a year before.

Do the bears have a strong thesis?

Anybody who is bearish on Aphria right now has some strong facts to support their thesis. In addition to the already mentioned factors, there’s the fact that the company has been shaking up its management team — with the departure of CEO Vic Neufeld being a major point of contention. Although Aphria and Neufeld stated at the time that the resignation was not related to the issues the company was facing, the departure of a C-Suite executive with such timing always raises questions.

Reasons for optimism

There are some reasons for optimism about Aphria. With 600% year-over-year revenue growth, it’s one of the faster-growing cannabis companies. The company also has a lucrative long-term investment portfolio that, in past quarters, helped give it positive net income when other cannabis producers were losing money. Finally, Aphria has a strong international presence, including major operations in Columbia — a country where conditions are considered to be favourable for cannabis growing and cultivation.

Foolish takeaway

Aphria’s months-long downtrend has definitely been alarming but is not unusual for the cannabis sector. Remember, this industry has significantly more volatility than most, and every single cannabis grower out there has seen a 50% selloff at some point in the past three years. As for whether Aphria’s investors should be panicking, it depends on whether they’re able to handle that kind of volatility over the long term.

You might be missing out on one of the biggest opportunities in Canadian investing history…

Marijuana was legalized across Canada on October 17th, and a little-known Canadian company just unlocked what some experts think could be the key to profiting off the coming marijuana boom.

Besides making key partnerships with Facebook and Amazon, they’ve just made a game-changing deal with the Ontario government.

One grassroots Canadian company has already begun introducing this technology to the market – which is why legendary Canadian investor Iain Butler thinks they have a leg up on Amazon in this once-in-a-generation tech race.

This is the company we think you should strongly consider having in your portfolio if you want to position yourself wisely for the coming marijuana boom.

Learn More About This TSX Stock Now

More reading

Fool contributor Andrew Button has no position in any of the stocks mentioned.

Source: The Fool
Should Aphria (TSX:APHA) Investors Be Panicking Right Now?
The Fool

The Motley Fool
Contributor for
The Motley Fool is dedicated to helping the world invest — better. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, mutual funds, and premium investing services.

In all we do, we take a different approach.

We believe – and have proven over decades – that the individual investor can beat the market.

We believe that anyone can do it, even if they don’t have a lot of time or money to devote to investing.

We believe in a long-term outlook, helping people build wealth over time.

We believe that the person best positioned to take care of your financial future is you.

And we work tirelessly on behalf of our hundreds of thousands of members who are enjoying the opportunities that come with having enough money to do the things that matter to them.

While we are headquartered in Alexandria, Va., The Motley Fool advocates for the individual investor around the globe with offices in the UK, Australia, Canada, Singapore, and Germany.

Related posts