Is Aphria (TSX:APHA) Stock a Buy Heading Into Earnings?

Aphria Inc (TSX:APHA)(NYSE:APHA) is coming off a bad Q3, and it’ll need a very strong finish to the year to make up for it, but that still might not be enough for the stock to rally.

edit Businessman using calculator next to laptop

Image source: Getty Images.

Aphria (TSX:APHA)(NYSE:APHA) is expected to release its latest quarterly results on Thursday after the markets close. It’s going to be a big test for an industry that’s recently been shaken by the CannTrust scandal. Heading into this week, Aphria had already lost around 20% of its value over the course of the last month, and there’s been no negative press surrounding the company during that time.

It’s an example of how heavily cannabis stocks can be impacted by their peers. There is a lot of apprehension from investors lately, and it’s certainly been evident in all the selling that’s taken place of not only Aphria but other cannabis stocks as well. However, that also means there could be a lot of upside for Aphria’s share price if the company reports a strong earnings result this week.

In its most recent quarterly report, Aphria struggled with rising costs and writedowns that sent the stock into a big sell-off soon afterward. And the recent negativity in the industry has only made things worse for its share price.

However, if Aphria is able to show some improvement this quarter in not just sales but its bottom line, that could help win the trust of investors. If investors can be convinced that the company is being run well, there’s more of a likelihood that they’ll trust it, which today might be the biggest determinant in whether a cannabis stock will be able to rise in value.

Aphria, unfortunately, has had a history of walking a tight line when it comes to regulations, and that reputation might not be doing the company any favours today. But with a change in leadership, Aphria has done a good job of keeping its name out of the press for the wrong reasons, and so there’s the possibility that if it can demonstrate a more financially sound business, it could generate some excitement around the stock once again.

At a minimum, investors will be looking for sales to show significant growth during the quarter, likely at least double from what they were a year ago. However, after posting a big loss of more than $100 million last quarter, investors will be looking for a big improvement there as well. Failing that, there’s a possibility that Aphria could go on even more of a decline. While it may not reach its 52-week low of less than $5 per share, there’s still ample room for Aphria’s stock to fall from where it is today.

Bottom line

There’s never been a riskier time to invest in cannabis stocks than right now. Even with a good performance this quarter, Aphria’s stock might still not see a lot of buying. While it may help stop the bleeding and perhaps even generate a rally, until the concerns in the industry subside and investors have more confidence in cannabis companies, we’ll likely continue to see a lot of bearish activity.

For that reason, I wouldn’t expect that Aphria will be a good buy today. A lot of things would have to go right for the stock to have a good quarter, meanwhile, any positivity would still be weighed down by concerns investors have for the industry as a whole.

Investors may be better off waiting on the sidelines for now before buying Aphria or any other cannabis stock.

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 David Jagielski has no position in any of the stocks mentioned.

More on Cannabis Stocks

A cannabis plant grows.
Cannabis Stocks

TLRY Stock: Here’s What’s Coming in 2023

Tilray Inc. (TSX:TLRY) is geared up for big growth this decade and looks like one of the top cannabis stocks…

Read more »

A person holds a small glass jar of marijuana.
Cannabis Stocks

Canopy Growth Stock: Here’s What’s Coming in 2023

Canopy Growth stock has made a lot of new moves in the last few months, but where is the company…

Read more »

A cannabis plant grows.
Cannabis Stocks

Better Cannabis Buy: Canopy Growth Stock or Tilray?

Only two TSX weed stocks can deliver substantial returns in the highly anticipated growth of the global cannabis market.

Read more »

Medicinal research is conducted on cannabis.
Cannabis Stocks

Is Tilray Stock a Buy in January 2023?

Tilray stock has lost 50% of its value in the last 12 months, in line with its peers.

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Are Cannabis Stocks Still a Thing in 2023?

The whole question of whether cannabis stocks are still relevant in 2023 is an interesting one. Here's my take on…

Read more »

A cannabis plant grows.
Cannabis Stocks

Why Canopy Growth Stock Fell 72% Last Year

Canopy Growth stock is a beaten-up cannabis giant that is trading at a discount compared to historical multiples. But is…

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

Is SNDL Stock a Buy in January 2023?

SNDL is among the worst-performing cannabis stocks in the last three years. But is SNDL stock a buy right now?

Read more »

a person watches a downward arrow crash through the floor
Cannabis Stocks

Why Tilray Stock Fell Almost 60% in 2022

Tilray is a Canadian cannabis stock that is down 93% from all-time highs. Let's see if TLRY stock is a…

Read more »