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Should You Buy Aphria (TSX:APHA) on the Dip?

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Aphria Inc (TSX:APHA)(NYSE:APHA) released its third-quarter earnings report on Monday. Unfortunately, the pot company’s financial results were not received well by investors and analysts.

Aphria’s share price fell by about 14% on the heels of its earnings release. Is the company an attractive investment despite these negative reactions? Let’s take look at some of the highlights of Aphria’s financial results.

The good

In its recently-released earnings report, Aphria kept up one of the common themes of the marijuana industry. Now that the legalization of recreational uses of marijuana is legal in Canada, revenues have gone through the roof for most major marijuana firms.

Aphria recorded net revenues of $73.6 million, a 240% increase from the previous quarter and a whopping 617% from the comparable period of the previous fiscal year.

The bad

Unfortunately, soaring revenues were about the only good thing on Aphria’s statements, and it is hardly something to get too excited about. That is especially true given that Aphria’s revenues fell short of analysts’ estimates by almost $12 million.

Even more notable, though, was the fact that Aphria sold less weed compared to last quarter. The 2636 kilograms of weed sold was down about 23% from the previous quarter.

Aphria also recorded losses of $108.2 million after the company had recorded a net profit during the last quarter. This net loss was partly due to some skeletons in the company’s closet. Last year, Aphria came under fire after allegations that it had paid too much for several acquisitions it had made in South America.

Aphria parted ways with its then CEO and the company’s founder stepped down from his role. Aphria also conducted an internal audit that revealed there was no wrongdoing.

Despite undergoing these lengths to clear its name, the company had to write-down about $50-million (a non-cash item on its income statement) as a result of its cannabis acquisitions in Latin America.

This one-time charge does not tell the full story of the company’s poor financial results, however. Aphria would have recorded a net loss of about $50 million even without the adjustment. The company’s gross profit margin plummeted to 18.2%, down from 77.1% year over year.

While Aphria is cashing in on higher prices at the point of sales, up 44% year over year, the company is also suffering from higher costs of producing cannabis, which were up 10% year over year. Fierce competition, lower sales and revenues, increasing costs, and ongoing drama are hardly a recipe for success — for any company.

Should you buy?

Aphria’s trouble started late last year when the short-selling allegations first came to light. Although the company seemed to have gotten away from the shadow of these allegations, the company’s recent financial results were the latest chapter in the saga.

Further, Aphria is still in the midst of an attempted aggressive takeover by Green Growth Brands. None of this bodes well for a company whose financial results are less than stellar. All things considered, Aphria looks to be fighting an uphill battle at the moment, and there are companies in a much better position in the marijuana industry.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Prosper Bakiny has no position in any of the companies mentioned. 

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