A look at the odds of Aphria (APHA) surviving the cannabis bubble

Though there are clear indications that the cannabis bubble is about to burst, the performance of certain pot stocks shows that not everyone has lost hope. Aphria Inc. (NYSE: APHA), the Canadian cannabis firm that made its Wall Street debut more than a year ago, has left shareholders speculating about its future. Despite the persistent downtrend, the performance of Aphria’s stock has been better than some of its peers.

Related: Aphria Q1 2020 Earnings Conference Call Transcript

The company is still awaiting a much-needed turnaround, though it managed to come out of the red briefly last year. The optimists among market watches view the short-lived recovery as a prelude to a full-fledged return to growth this year, since it came at a time when most others were struggling.

Despite the not-so-impressive performance in recent quarters, Aphria’s management announced an ambitious strategy to achieve sustainable profitability, with focus on overseas expansion and monetization of non-core assets. The near-term outlook for the weed industry does not offer the stakeholders much to cheer about. There are chances that Aphria might remain in the red in the near future, given the muted demand for its products and the general slump in the market.

Buy It?

The significance of those factors, from an investment perspective, is that the stock has become cheaper, which would make it appealing to some investors. Moreover, long-term buyers can count on the fact that the recreational marijuana industry is still at a nascent stage, and has immense growth potential. Analysts, in general, have aptly given the stock buy rating, with a price target of $6.83 that represents a 63% upside.

Future Perfect

Going forward, sales could pick up once the distribution channels are fully operational, especially in Canada where efforts are progressing in that direction. Consumption patterns are set to change once value-added products like pot-infused drinks, concentrates and vapes enter the market seamlessly, lifting sales. Also, it is expected that more US states would legalize marijuana products this year.

Q2 Outcome

For the second quarter, the company reported a loss of CAD 0.03 per share, compared to earnings of CAD 0.22 per share last year. Meanwhile, revenues rose sharply to CAD 120.6 million, continuing the recent trend.

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Aphria’s stock closed the last trading session at $4.26, which is close to the multi-year lows seen earlier this week. The stock has lost 17% since the beginning of the year and 59% in the past twelve months.

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