It was the cannabis-industry news item of the month, and possibly of the entire year: Aphria (NYSE:APHA) posted an astounding gain after the company absolutely crushed earnings and goosed the Aphria stock higher.
If you already owned shares, then watching the Aphria stock price ascend 22% was a cause for celebration; if you’ve been sitting on the sidelines, though, now you have to ask yourself whether it’s still a buy at the new price point.
That’s what happened on Oct. 15, and on Oct. 25 Aphria stock jumped up almost 9%, by which time its new price hardly resembled the APHA stock price of two weeks prior. Is it still safe to purchase shares at this point, or should traders fear exhaustion and a retracement?
Timely Gains in APHA Stock
After a tough summer and an even tougher September for pot stocks, Aphria’s blockbuster earnings report couldn’t have come at a better time. Cannabis-stock valuations were lagging and investors in APHA stock and other weed stocks were feeling panicky and exhausted.
Not that the global marijuana market is doing poorly by any means; if anything, the pro-pot movement is as strong as ever. Under the auspices of Florida International University, Joëlle Anne Moreno’s legal-studies research paper notes that the groundswell of pro-cannabis support has led to unprecedented consumption of the product:
“Growing marijuana support, markets, and consumption are a global phenomenon. According to the World Health Organization (‘WHO’), the annual rate of marijuana consumption worldwide is approximately 147 million individuals or nearly 2.5% of the global population.”
And so, I saw no reason to lose your cool during the summer heat as cannabis stocks like APHA succumbed to price pressure. The next thing you knew, Aphria lifted the entire sector out of the doldrums with an earnings beat that the pessimistic analyst community clearly wasn’t ready for.
The Experts Were Off, Way, Way Off
I won’t go on a rant here about how analysts get to keep their jobs even when their forecasts are way off the mark, but suffice it to say that the analyst community didn’t exactly earn their paychecks with their Aphria earnings estimates.
For instance, the “experts” projected a loss of (in Canadian dollars) CAD$0.02 per share for Aphria’s first fiscal quarter of 2020; the actual result was a gain of CAD$0.07 per share.
In other words, not only didn’t they get the numbers right, they didn’t even get the direction right. Another example was Aphria’s EBITDA, which was predicted by the analyst community to come in at a loss of CAD$2.2 million; the actual report turned out to be a gain of C$1 million – again, wrong number and wrong direction.
Many of these “gurus” are the same people who warned against buying pot stocks in 2016, so perhaps it’s best to ignore them – but then, we have to pay attention to their forecasts because they impact weed-stock prices come earnings time.
In any case, even an analyst with a crystal ball couldn’t have predicted a year-over-year increase of 848.8% in Aphria’s revenues; with growth like that, analysts will be hard-pressed to discredit the company as a major competitor in the field.
The Takeaway on Aphria Stock
Please don’t misunderstand – I’m not expecting the APHA stock price to reclaim the $18 level it achieved in early 2018; those were heady times for the marijuana market, which was experiencing rapid changes as policymakers, businesses, and the general public warmed to the idea of legal medical and/or recreational marijuana.
Whether the Aphria stock price ought to have gone up so far, so fast in the past couple of weeks is debatable, sure, but the nearly 850% year-over-year revenue growth is equally eye-popping and mouth-dropping. If you’re considering going short against APHA anytime soon, I would recommend against it; just because Aphria investors are getting high, doesn’t mean they can’t get much higher.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.