Earlier this month, Aphria (NYSE:APHA) released its latest earnings results. And while there was a lot of excitement surrounding yet another profitable quarter from the company, that doesn't tell the whole story. Let's take a closer look at how the company performed in its first quarter of fiscal 2020 and whether its stock is as good a buy as it appears to be.

What was really behind the company's strong performance in Q1

One of the challenges with Canadian marijuana stocks is that it can be hard to gauge the success of their companies' growth. A year ago, pot was just becoming legal in Canada, so year-over-year sales numbers reflect explosive gains. For instance, net revenues of 126.1 million Canadian dollars look incredible for Aphria in Q1 when compared against sales of just CA$13.3 million in the prior year.

Sales definitely helped Aphria improve its financials and generate a stronger gross margin than it did in the prior year. But that alone wasn't the reason for the company landing in the black.

Cannabis greenhouse

Image Source: Getty Images.

For one, fair-value adjustments added a net CA$17.9 million back to gross margin. Without the boost, the company's operating income would have been in the negative. Instead, the fair-value gains allowed Aphria to have enough in gross profit (CA$45.4 million) to cover its operating expenses, which climbed from CA$24.1 million to CA$41.4 million during the past year.

But even that wouldn't have been enough for a positive net income figure, as financing expenses of CA$5.3 million would have been enough to send the numbers back into the red. It was nonoperating income of CA$20.3 million that gave the numbers enough of a boost to finish the quarter in the black.

Why should investors care?

While it was a good result for Aphria overall, investors should be aware that the results could create a misleading picture of the company. Without the nonoperating income and the fair-value gains, you've got a CA$38.2 million boost to the financials this quarter that might not reappear in future periods.

Investors shouldn't rely on these numbers continuing to prop up the company's results. Fair-value gains are by no means a guarantee, and there's the possibility that the company could even incur a loss related to its biological assets. That could make for a lot of noise in its gross profit.

Nonoperating income can also be very volatile. Although Aphria incurred a foreign-exchange loss of CA$8.7 million this past quarter, its gains from long-term investments (CA$13.7 million) and unrealized gain on convertible debt (CA$14.2 million) were more than enough to offset those costs. But as many cannabis investors know by now, investment gains are by no means certain.

The danger in looking at Aphria's results is that the company didn't post a profit as a result of its day-to-day operating activities, and that should offer a reminder that these results might not be repeatable or sustainable.

Keep your eyes on the big picture

Aphria had a good quarter, especially relative to its peers. But before investors get excited about these numbers, they may want to wait for a few more quarters to see just how consistent the results will prove to be.

However, it's important to note that even though the company has produced a couple good quarters lately, that hasn't been enough to dramatically improve the stock's fortunes, as Aphria has fallen around 30% in the past six months. And while the stock did get a boost back in Q4 when the business impressed investors with its year-end results, it ultimately would go back on the decline.

The challenges in the industry have been significant, and even strong earnings performances haven't been enough to overcome them. So despite a strong Q1, investors might want to wait before deciding to buy shares of Aphria, as there's a possibility that they could go on to fall yet again.