Please ensure Javascript is enabled for purposes of website accessibility

Why Aphria Stock Is Sinking Today

By Keith Speights - Apr 15, 2019 at 11:36AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Disappointing quarterly earnings results are taking a toll on the Canadian marijuana stock.

What happened

Shares of Aphria (APHA) were down 12.9% as of 11:30 a.m. EDT Monday after the Canadian marijuana producer announced its fiscal 2019 third-quarter earnings results before the bell. Aphria reported revenue of 73.6 million Canadian dollars ($55.3 million), reflecting quarter-over-quarter growth of 240% and year-over-year growth of 617%.

With that kind of strong sales growth, why were investors disappointed? For one thing, Aphria posted a big net loss of CA$108.2 million ($81.3 million), or CA$0.43 per share ($0.32) after achieving a profit in the prior-year period. The company also badly missed  analysts' consensus estimates for revenue of CA$85.2 million ($64 million) and earnings per share of CA$0.03 ($0.02).

Marijuana plants growing in a greenhouse

Image source: Getty Images.

So what

Typically, a single quarter's failure to hit analysts' estimates isn't anything for investors to worry about. That's especially true when the reasons for the miss were temporary in nature. And that's the case for Aphria with its Q3 performance.

The company definitely wasn't operating at full throttle from a capacity standpoint in Q3, and it also struggled to update its packaging to meet the new requirements imposed by the Canadian government for adult-use recreational marijuana products. Both factors contributed to Aphria's revenue coming in lower than expected.

Aphria also boosted spending significantly to add production capacity and deal with those new packaging requirements. In addition, the company reported a non-cash impairment charge of CA$50 million ($37.6 million) related to its acquisition of LATAM Holdings. 

However, it received a license for its Aphria One expansion in March, which more than tripled its annual production capacity. The company is implementing automation, and sourcing packaging from new suppliers, moves that should lead to reduced costs later this year. 

Now what

Aphria is still in the early stages of its life cycle as a competitor in Canada's legal cannabis market and in the international medical cannabis business. The company's Q2 results only included a couple of weeks of adult-use recreational sales in Canada; Q3 was the first full quarter of unrestricted sales in this important market.

The company's added capacity should help it tremendously later this year. Aphria was one of only three producers to receive approval by the German government to cultivate cannabis in that country. So despite its disappointing Q3 results, it still appears to have significant upside potential over the long run.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Aphria Stock Quote

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.