There aren't many marijuana companies out there that have stayed profitable over the past year or so. While most of the big names in this industry have seen their shares plummet alongside continued losses, one of the few exceptions is Canadian cannabis grower Aphria (NASDAQ:APHA).
To many investors' surprise, however, the company reported an unexpected net loss in its recent fiscal fourth quarter. In response, the stock tumbled close to 20% following the announcement, a loss that has many investors wondering whether this pot stock is still worth a spot in their portfolio.
Let's look a little deeper and see what exactly is going on.
For the most part, Aphria has forged a reputation as being a profitable cannabis company. Thanks to its German subsidiary, CC Pharma, Aphria's managed to do quite well for itself over the past year or so. The last time Aphria failed to post a profit was during its fiscal second quarter, when the company reported a loss of $7.9 million Canadian.
In comparison, Aphria's recent Q4 results featured a staggering CA$98.8 million net loss, making it one of the worst quarters in recent history for the company. That said, most of these losses were due to one-time expenses; about CA$64 million of the total came from non-cash impairment charges on Aphria's international assets in response to COVID-19.
Understanding what's going on
Diving a bit deeper into these results, Aphria's situation doesn't seem all that bad. Its overall revenue figures have continued to grow despite this pandemic, with net revenue rising by 5% in comparison to the previous quarter. Additionally, Aphria is becoming even more efficient at producing cannabis, something it was already pretty good at. Its cash cost to produce dried cannabis declined to CA$0.88 per gram, down 5% from the previous quarter as well.
While this might not seem like much in comparison to a CA$99 million loss, it's a pretty solid sign that Aphria's fundamental business is managing to do OK for itself despite this pandemic. In comparison, the much larger Canopy Growth (NYSE:CGC) saw its net revenue decline by 13% between its third and fourth fiscal quarters. That's on top of a CA$1.3 billion net loss that the company reported in Q4.
At the same time, Aphria's in a pretty good cash position, so taking this one-time financial hit won't shake the business that much. The company has about CA$497.2 million in cash and cash equivalents after reporting this net loss, which is pretty good in comparison to most other companies in this industry.
Should you buy Aphria while it's cheap?
Despite being profitable this year (for the most part), Aphria has always been a relatively cheap stock by most cannabis company standards. Its price-to-sales (P/S) ratio is currently sitting at 3.1. Canopy Growth is trading at a 21.3 P/S ratio despite having a pretty poor quarter overall. Even Aurora Cannabis, one of the most battered cannabis companies on the market with more than its fair share of financial problems, has a P/S ratio of 4.2.
It's pretty rare to find a company that's both financially healthy and priced more cheaply than its competition. That's already the hallmark of a good value investment -- but there are some other things worth mentioning here as well.
First of all, Aphria has received some crucial certifications in Germany that would allow the company to export Canadian cannabis for German distribution. These export sales are expected to further supplement its distribution revenue from CC Pharma, which already accounts for the majority of Aphria's overall income.
Management also said that it might consider buying up distressed assets during this crisis as well. That could be a good idea for Aphria, as there are likely plenty of cannabis assets being sold by companies that are now struggling amid coronavirus-induced business slowdowns.
As the old saying from Warren Buffett goes, "Be fearful when others are greedy and greedy when others are fearful." This unexpected loss on Aphria's part isn't that big of a deal in the long run, especially when all of its other financials are quite healthy. As such, investors shouldn't be overly concerned about Aphria right now. In fact, I'd say now's a pretty good buying opportunity for investors looking to find solid value stocks during this market climate.