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Why Aphria Stock Skyrocketed 86% in November

By Joe Tenebruso - Dec 6, 2020 at 7:21AM

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Investors are growing more optimistic about the marijuana producer's growth prospects.

What happened

Shares of Aphria ( APHA ) soared more than 80% last month, according to data provided by S&P Global Market Intelligence, as the popular marijuana stock recovered from its losses in October.

So what

Aphria's shares fell hard after its first-quarter earnings report on Oct. 15. Coronavirus-related challenges weighed on Aphria's revenue growth and led the previously profitable company to post a $5.1 million loss during the quarter.

Yet as my Foolish colleague Zhiyuan Sun noted, the sell-off was overdone. Aphria limped into November with its shares trading at a bargain, with a price-to-sales ratio of around 3 and a price-to-book around 1 -- and investors quickly pounced on the deal.

A dollar bill folded into an arrow-tipped line that rises, then falls, then rises again

Aphria's stock rose sharply last month. Image source: Getty Images.

Cannabis stocks jumped in early November after Vice President-elect Kamala Harris promised that the Biden administration would decriminalize marijuana at the federal level. Decriminalization could make it easier for marijuana-related businesses to obtain financing and other services from banks, which has long been a challenge for the cannabis industry. Aphria's gains were also aided by voters in five states -- New Jersey, Arizona, Mississippi, Montana, and South Dakota -- approving ballot initiatives to legalize marijuana.

Additionally, investors cheered Aphria's acquisition of SweetWater Brewing Company, one of the largest independent craft brewers in the U.S. SweetWater makes 420, the popular hemp-flavored beer brand, and the brewer's retail relationships should help Aphria expand its U.S. distribution network.

Now what

Even after last month's surge, more gains could lie ahead for Aphria's investors. As one of the more financially sound marijuana companies -- Aphria has generated positive adjusted EBITDA (earnings before interest, taxes, depreciation, and appreciation) for six consecutive quarters -- the marijuana producer's stock remains one of the best ways to invest in the long-term growth of the global cannabis market.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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