If an investor were to look at the surface, Aphria Inc. (TSX:APHA)(NYSE:APHA) looks like quite the deal right now. The stock hit an all-time high of $22 per share last September, but quickly plummeted along with the rest of the cannabis industry right after marijuana legalization hit Canada.
Since then, the company has struggled to return to those glory days, hitting a 52-week low of $4.76, and coming up 80% since then to $8.62 at the time of writing.
But can investors expect to see those all-time highs again? Let’s take a look.
Aphria has been touted as the third-largest marijuana producer in Canada for a while now, with peak production hitting around 255,000 kilograms per year. That definitely seems like a lot, but compared to the top two competitors it looks like nothing.
Aurora Cannabis Inc. produces at peak production around 650,000 kilograms per year, and Canopy Growth, while it keeps its production capacity close to its chest, is definitely ahead, consistently announcing expansion projects.
There’s another side to Aphria, however, and it’s fairly well known. The company has been accused of fraud, with short sellers suggesting the stock overpaid for Latin American assets in Jamaica, Argentina, and Colombia on purpose that were basically worthless. However, an independent review found that the price was reasonable, but that there were a number of directors in Aphria who had conflicts of interest with some of the acquisitions.
The news led to the CEO Vic Neufeld stepping down as well as a $50 million write-down after releasing its third-quarters results from its Latin American assets. Neufeld leaving is also a huge hit to the potential of the company’s entrance into edibles, who had extensive experience. Honestly, investors have since been pretty much unable to trust Aphria’s management.
Hitting it hard
Being behind its two competitors by quite a lot, and especially amid all the scandal, its third-quarter results were incredibly disappointing for shareholders. Revenue came in at $73.6 million, but core operations declined by 23%, with a loss of $108 million due in part from the write-down and a 35% decline in sales, which is huge compared to the growth in sales seen by both Aurora and Canopy.
Here’s another problem: the company isn’t even looking at entering the United States market. While working on the domestic front could be beneficial, it’ll also remain relatively small. There are a lot of competitors that it would have to acquire, and right now, the company just doesn’t have the cash on hand to buy them.
It’s still a hard time for Aphria currently, and it doesn’t look like it’ll improve much any time soon. If you have a strong belief in this stock’s future as a Canadian company, now would be the time to buy. In fact, analysts still think the stock could rise between $13 and $26 per share. But it’s going to take a lot of growth in sales and some big moves amongst management to convince investors that they can trust this cannabis company again.
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Fool contributor Amy Legate-Wolfe owns shares of Aurora Cannabis and Canopy Growth.