There's been significant volatility in the cannabis industry over the past year, and there's a real danger that in the coming year many companies may not survive the pandemic. That's why it's generally a safer option to invest in the industry leaders, which enjoy strong market share and have the necessary resources to get through these challenging times.
Today, I'll look at two of the top pot stocks in the industry -- Aphria (APHA) and Canopy Growth (CGC 4.38%) -- and assess which of these leading cannabis producers is the better stock to hold in your portfolio.
Aphria's got a better track record in terms of profitability
One of the ways Aphria has established itself as one of the safer stocks in the industry is by being able to stay in the black on a relatively consistent basis. In three of its last eight quarters, the Leamington, Ontario-based pot producer has reported a positive net income figure.
In its most recent quarterly results, which the company released on April 14, Aphria posted a net income of 5.7 million Canadian dollars on net revenue of CA$144.4 million. Even as its sales nearly doubled the prior-year period's revenue of CA$73.6 million, the company has been able to stay profitable, which isn't easy amid rising expenses.
In contrast, Canopy Growth only posted a positive net income number twice over the past two years. In its annual results, which the Smith Falls, Ontario-based company released on May 29, Canopy Growth incurred a loss of CA$1.3 billion. That's up about 80% from the CA$736.3 million loss it incurred a year ago.
Canopy Growth may not even be the best growth stock
There's little doubt that Canopy Growth has lost its step since the firing of Bruce Linton. The company's just not the same anymore.
Constellation Brands (STZ 0.03%) does hold a 38.6% stake in the cannabis producer's business, making Canopy Growth a more stable pot stock to invest in, but Constellation has arguably made the company a worse growth stock in the process of pushing Linton out.
That's because Canopy Growth is taking a different approach under its new CEO, David Klein, who came over from Constellation Brands earlier this year. Klein's pulled the company out of Lesotho and South Africa and cut back on operations in other parts of the world. The new boss is working on improving the bottom line, and that means growth won't be a top priority for the company the way it appeared to be under Linton. And while profitability is important for the company's long-term health, focusing on growth is what made Canopy Growth's stock such a hot commodity in the first place.
As Canopy Growth transitions into a more formidable company that's investable and profitable, it'll likely continue to lose market share and the advantage it once held over its peers. In the fiscal year ending March 31, 2019, Canopy Growth's net revenue totaled CA$226.3 million. By comparison, for the 12 months ending Feb. 28, 2019, Aphria's net revenue totaled CA$120.6 million.
But in this past fiscal year, Canopy Growth generated CA$398.8 million, which is less than the CA$519.7 million that Aphria recorded in its trailing 12 months. Canopy Growth lost market share to Aphria over the past year, and that gap could widen as it focuses more on profitability than growth.
Valuation only confirms the obvious: Aphria's the better buy
Not only is Aphria more consistent, profitable, and generating more sales, but it's also a cheaper pot stock to buy. In the past 12 months, Aphria's performed better than both Canopy Growth and the Horizons Marijuana Life Sciences ETF:
And in a testament to how overpriced Canopy Growth was a year ago, Aphria's still a much cheaper buy today when you compare the two companies in terms of their price-to-sales multiples:
With a lower valuation and stronger results and market share, it's clear that Aphria is the much better cannabis stock to buy today, and it's not even close.