Over the past year or so, some companies have emerged as the leaders of the cannabis industry, and one of those is Aphria Inc (TSX:APHA) (NYSE:APHA). While many cannabis stocks tumbled significantly over the past year, Aphria stock didn't fall as far, and that is perhaps the reason why there is some optimism surrounding it still.
However, it is important to take a closer look before deciding anything. Investors who are bullish on Aphria point to the fact that the company managed to squeeze out a quarterly profit at a time when the industry was struggling.
That being said, experts believe that although the company did make a profit, it is on a downward spiral, and Aphria’s growth has been unable to justify its valuation.
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In its fiscal second-quarter financial results, Aphria reported revenue of C$120.6 million, which reflects a sequential drop of as much as C$5.3 million. Distribution revenue dropped from C$95.3 million to C$86.4 million. Last but not the least, the company’s gross profit came in at C$39.589 million, which reflects a significant drop from the gross profit of C$45.42 million in the previous quarter.
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At the time of writing, Aphria stock is down about 1% at C$5.65.
The drop inAphria's gross profit has been attributed to its higher spend on research and development. Due to the less-than-impressive performance in the fiscal second quarter, the company’s projections for the year have been lowered, and midpoint revenue projection for 2020 has been cut to C$600 million.
The previous midpoint projection was C$675 million. Revenue for the first half of the fiscal year was C$246 million, and in the second half, Aphria expects C$354 million in revenue. That is only a 44% rise in the second half, which is not particularly impressive, according to industry experts. The benefits from the legalization of cannabis derivatives have not yet kicked in for Aphria either.
The lower profit indicates that the company’s products are not demonstrating strong enough demand, and the revenue guidance indicates that Aphria stock might well be overvalued at this point.
What do you think?
Featured image: Canva
