Aphria stock is trading down today despite being offered a ‘hold’ rating by Stifel analyst W. Andrew Carter, who sees an 18% upside in value with a price target of $4.50.
Analysts on the Fence
In a note to investors, Carter writes that Aphria Inc’s (TSX:APHA) (NYSE:APHA) revenue growth and strong balance sheet underpins the rating, balanced by the bank’s outlook for the business to scale and offer margins much like other consumer packaged goods companies. Stifel also sees the potential for 89% cumulative annual growth from the firm’s cannabis operations over the next two years and that it will maintain its market share under Canada’s current regulatory framework, although additional costs related to market uncertainty are to be expected.
Aphria stock is currently trading for $3.81 on the TSX.
Struggle to Recover from Earnings Upset
Aphria posted its fiscal second-quarter earnings in January, which saw a net loss of C$7.9 million, a huge disappointment given the fact that the company reported a profit of C$54.8 million in the same period a year prior. While the decrease in net income was primarily due to provisions associated with the company’s Tier 3 passive investment portfolio, it again highlights the struggles facing cannabis firms in the first full year of legalization as the Canadian market continues to underwhelm. Since releasing its Q2 earnings, Aphria stock has fallen over 45%.
German Potential for Aphria Stock
While the previous quarter was clearly disappointing for the company and its investors, there remains huge potential for Aphria beyond the Canadian market. Through its German subsidiary, Aphria won the maximum output from the German tender process—a total of five lots—and stands as the only licensed producer in Germany with the permission to grow all three strains of medical cannabis approved by regulators. German demand is approximately five times the current supply, meaning Aphria stock could be a huge beneficiary of the growing medical market there.
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