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Why Aphria Stock Jumped Today

By Joe Tenebruso – Updated Jul 13, 2020 at 4:52PM

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Investors are undervaluing the cannabis company's shares, according to a respected analyst.

What happened 

Shares of Aphria (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 (ACB -3.23%), 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.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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