Aphria stock has been correcting since mid-April amid multiple negative news pieces from Aphria Inc (TSX:APHA) (NYSE:APHA).
The growth of the cannabis industry in Canada has seen a few companies emerging as the early leaders in the industry, and until it got embroiled with a controversy, Aphria was definitely among those. With a production capacity of 225,000 kilos a year it is just behind Canopy Growth (TSX:WEED) (NYSE:CGC) and Aurora Cannabis (TSX:ACB) (NYSE:ACB), coming in as the third biggest producer of cannabis.
However, unlike these companies, Aphria stock has dropped significantly over the past few months and trades at only 2.2 times its projected sales for 2020. That is a significant discount considering the fact that shares of Aurora trade 13.1 times its projected sales for 2020, while Canopy Growth is trading at 19 times its projected sales for next year.
However, there are plenty of positives that could make APHA a good proposition for many investors. As mentioned above, it is the third biggest producer of cannabis in Canada, and that is going to be its biggest strength as it tries to gain a bigger foothold in the market against mid- to small-sized cannabis companies.
Its production capabilities will also allow the company to experiment with product lines like edibles in the near future and corner some part of the market once it expands. In addition to that, Aphria is one of the few companies that have a strong presence in Germany, one of the most coveted markets in the world. The company’s subsidiary has managed to earn a total of five licenses for medical marijuana cultivation in Germany.
Aphria stock has fallen over 35% since its mid-April high of $10.20.
Opportunity in Europe
It is believed that Germany is going to be the biggest market in Europe once marijuana is legalized completely and Aphria is well positioned to take full advantage of such an eventuality. Many of its rivals have not managed to create such a presence in the market yet, although they have started making moves now.
The reason for Aphria stock's poor performance is due to a corporate controversy that erupted last year with relation to an acquisition. Quintessential Capital Management and Hindenburg Research, two well known short sellers, accused the company of paying above the market rate for the acquisition.
Although an independent inquiry proved that nothing of the sort happened, it has proven to be a dark cloud over Aphria and has weighed Aphria stock down. That being said, the past may no longer have a huge bearing on the company’s performance going forward, and in a recent report, a Jeffries analyst also stated that the controversy is no longer an issue for the company.
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