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Is Aphria’s (TSX:APHA) Stock Ready to Soar?

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Aphria Inc (TSX:APHA)(NYSE:APHA) has seen its share of drama over the past year. However, the pot company’s latest financial results were a breath of fresh air. Aphria finally put all its troubles behind and seems to be firing on all cylinders.

Could this be the start of a rally for the Ontario-based pot grower? Let’s look at what Aphria did during its fourth quarter. 

Revenues continue to soar

Aphria’s third-quarter financial results were somewhat disappointing, partly because of a lack of organic growth. The bulk of the firm’s top line increase was as a result of several international acquisitions.

Aphria’s core domestic operations were not impressive, but this may not be as big a problem as it seems.

It isn’t a secret that the Canadian pot market is highly competitive and risks suffering from a supply glut. Perhaps Aphria can keep its earnings afloat by relying on its international operations. 

During the fourth quarter, Aphria posted a net revenue of $128.6 million, which represents a sequential quarterly increase of 75% and a whopping 969% year-over-year jump.

Its average retail selling price for medical cannabis decreased by 4% sequentially, while its average retail selling price for recreational cannabis increased by 11%.

Once again, however, the lion’s share of the company’s net revenue was as a result of international acquisitions. Distribution revenue (which includes revenue from Aphria’s German-based subsidiary CC Pharma) accounted for almost $100 million (about 78%) of net revenue. Sales of cannabis produced were $33 million. 

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Aphria delivers a profit

Aphria had to incur a one-time impairment charge related to the much discussed and much- criticized LATAM acquisitions. This charge cost the company $50 million in non-cash expenses, dragging the firm’s earnings down in the third quarter. The fourth quarter shows a very different picture.

To everyone’s surprise, Aphria managed to deliver a net profit of $15.760 million, or about $0.05 per share, which is a major improvement, both sequentially and compared to the corresponding period of the previous fiscal year. Most analysts expected Aphria to post a net loss in the neighbourhood of $0.05 per share.

For fiscal year 2020, Aphria expects to post revenues between $650 million and $700 million, which would represent an increase of about 174%-195% from fiscal year 2019.

The company also expects its earnings before taxes, expenses, depreciation and amortization (EBITDA) to be between $88 million and $95 million. 

Finally out of the shadows 

It looks like Aphria finally put all its demons aside and manage to deliver stellar financial results. Naturally, the firm was rewarded: its share price jumped by as much as 40% after its earnings report was released.

It might be worth considering purchasing shares of Aphria before they skyrocket.

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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 stocks mentioned.


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