What happened 

Shares of Aphria (NASDAQ:APHA) climbed 8.8% on Monday, following an analyst upgrade of the marijuana stock. 

So what 

Stifel analyst W. Andrew Carter lifted his rating on Aphria's stock to buy from hold and placed a $5.90 target price on its shares. His new price forecast represents potential gains for investors of 26%, based on Aphria's current stock price of $4.68.

A rising stock chart is superimposed on a cannabis plant.

The marijuana stock Aphria rose sharply on Monday. Image source: Getty Images.

Carter argues that Aphria should trade at a premium valuation relative to peers such as Aurora Cannabis (NYSE:ACB), due to its superior balance sheet and profitability metrics.

Now what

The analyst says Aphria's upcoming fourth-quarter results will show that its sales doubled in fiscal 2020, which ended on May 31, to $390 million. For fiscal 2021 and 2022, he expects the pot producer's sales to rise 21% and 29%, respectively, to $470 million and $610 million, driven in part by new retail store openings in Canada. Carter forecasts that Aphria will generate positive cash flow in 2021 and as much as $100 million in operating cash flow by 2022.

In turn, he predicts investors will eventually value Aphria at a premium to its lower-performing rivals. "We believe the fundamental performance will drive a re-rating for the shares," he said.