If you actively invest in cannabis stocks, you are probably concerned about the current slump in the market. Cannabis stocks have taken a beating in the markets this week.
Research reports about medical and health risks of vaping have unsettled investors, who now expect a decline in demand.
Tensions because of the U.S.-China trade relations have also had an impact. The blacklisting of eight more Chinese tech companies by the U.S. administration means the cannabis supply agreements could be the next to go.
China is a major supplier of cannabis and other related products in the U.S. market. Chinese companies own more than half of the cannabis-related patents around the world, and any bans on supply to the U.S. could affect the retailer stock prices adversely.
There are also the scandals such as CannTrust being caught with illegal marijuana — scandals that have broken investor trust. The good news is that with every market crash, there comes an opportunity to purchase stocks at a better price.
Aphria valuation and market sentiment
Aphria Inc’s (TSX:APHA)(TSX:APHA) has had a roller-coaster ride for 2019, with share prices skyrocketing then plummeting. The good news is that Aphria is one of the few cannabis supply companies that have consistently surpassed estimates about its earnings results for the year.
Its operational performance helped boost the overall analyst and investor confidence for the company.
The stock is currently trading around the price of $6.64 per share at writing, which is much lower than its 52-week high of $17.60 per share. The decline in Aphria’s share price and valuation could mostly reflect sector-wide concerns in the industry rather than the company’s performance.
In other news, Aleafia also announced that it terminated its wholesale cannabis supply agreement with Aphria after the latter failed to meet its supply obligations.
Aphria shares have fallen by 5% at the announcement of the termination. Its management noted that the company had every intention of fulfilling the obligation, and they were disappointed at the decision by Aleafia.
Outlook for Aphria in 2020
Despite the seeming collapse of the supply deal with Aleafia, the outlook for Aphria stock growth remains positive for 2020. At its current share price, the stock is extremely undervalued and highly recommended by analysts as an attractive investment opportunity.
The Canadian company is focused on leveraging the Cannabis 2.0 opportunity in Canada and poised to take control of the edible Cannabis market.
2020 will be a year of growth for the business. Market experts have forecast that the company’s fiscal 2020 EBITDA will be more than 64 million dollars.
The cannabis sector has shown a significant level of volatility these days. Faced with the uncertainty of cancelled supply agreements, failed mergers, and the escalating U.S.-China trade war, it’s necessary for you as an investor to keep a close eye on the developments in the market.
When you think that the marijuana market has reached the bottom, Aphria should be one of the first stocks you consider purchasing.
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 Adam Othman has no position in any of the stocks mentioned.