Aphria Inc. (NYSE: APHA) stock has been beaten down for over a year now, but with markets looking more deeply into companies for valuation, it may offer an interesting play into the cannabis industry.
Until about two months ago, cannabis products were a high-priority and hotly contested subject. Questions about the medical and adult use of cannabis were in the forefront of many U.S. voters’ minds, as this is an election year. However, the COVID-19 pandemic has pushed this discussion to the backburner.
While the questions about the legality and appropriate use of cannabis are still up for debate in the United States, some companies that sell cannabis products are public and available to trade.
Notwithstanding the current market climate, recent moves by Aphria’s stock may suggest investors have found a proper valuation. If so, then a further rebound may be in order, considering its cash position as well.
Charts on Charts on Charts
A look at the chart shows that Aphria stock could hold some potential going forward. The stock bottomed around $2 at the peak of coronavirus fear. Since then it has rebounded about 70% off these lows and crossed above the 50-day moving average. There are a couple of things to unpack here, however.
A chart with a longer timeline would tell investors that this stock has been on the decline since this time last year. One with an even longer timeline would reveal that the stock is currently considerably higher than when it entered the market in 2015.
Again, the stock is significantly lower than when it started the year, but this is the case with the cannabis industry as a whole. For the most part, S&P 500 components are still down from the middle of February.
While cannabis companies have been in decline for a long time, the question for investors always has been what the appropriate valuation is. This bounce off pandemic lows could be a good place to start.
The coronavirus pandemic really gave investors a chance to question the true valuations of companies and look deeply at the balance sheets. Considering the near-term weakness and recovery, investors already have decided that this is not a $2 stock. While this most definitely will be a technical level going forward, it’s safe to assume that this company will be newsflow-driven going forward. This includes key fundamentals that the company will release regarding its production capacity and its sales.
Balancing Act
Of all the cannabis companies, including the likes of Canopy Growth Corp. (NYSE: CGC), Cronos Group Inc. (NASDAQ: CRON) and Aurora Cannabis Inc. (NYSE: ACB), Aphria actually has the best cash-to-market capitalization ratio.
Although Aphria isn’t the biggest or most well-known cannabis stock on the market, it is the most liquid. The company only boasts a market cap of just over $900 million, which is partially comprised of $515 million in cash and cash equivalents.
Adding to this cash position in January, an unnamed institutional investor put in $100 million in Canadian dollars (a little over US$76 million) to acquire 14.04 million units. Each unit consists of one share of Aphria stock and one-half of one warrant to purchase one share of common stock at C$9.26 for a period of 24 months from the end of January.
In pandemic times, solid balance sheets have been a beacon of hope to investors, and for those wishing to get into the cannabis industry, a cash-rich company may be that vehicle.
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