Aphria (APHA) stock is up big in Friday morning trading, as the Canadian-based company reported fiscal fourth quarter results after yesterday's close that surprised many. I had sold my position in the stock, as the slew of underwhelming news from many of its competitors had me believing that things just weren't going to be too strong.
Aphria has had a few quarters of chaos. First came the accusations of management making wrongful investments into subsidiaries, and then came the exit of their CEO. Now, with that drama behind them, Aphria has pulled together a fiscal fourth quarter that is exactly what APHA needed.
Aphria reported year over year revenue growth of 969% in fiscal Q4, bringing total revenues to $128.6 million. Quarter to quarter, that revenue represented a 75% increase. Granted, the advent of recreational cannabis markets in Canada pretty much set the stage for this sort of revenue expansion. Still, it speaks to the potential here for the companies that can capitalize. Revenues for adult use cannabis increased 158% quarter to quarter, totaling $18.5 million.
(Figures are in Canadian dollars unless otherwise noted.)
A few years ago, Aphria was "the" marijuana stock in terms of profitability and revenues. The company had built a very nice medical business, and was easily one of the most stable names to own. Fast forward to the ramp up to legalization, and Aphria took a hard turn in the wrong direction. Granted, the expenses involved in ramping up production to meet a brand new market of consumers isn't cheap, so the losses that the company has incurred were rather unavoidable to a large degree.
To the shock and awe of many, the producer reported a profit in this most recent quarter. Gross profits increased 97.7% year over year to $36 million, with adjusted gross profits on cannabis of $15.16 million. The margins on that $15.16 million were 53%. Adjusted gross profits for distribution were $12.27 million, with margins of 12.4%. Overall net income was $15.76 million, a marked improvement from fiscal Q4'2018 net losses of $5 million. On a per share basis earnings were $0.05.
So, is the chaos over? Is there finally a cannabis name with earnings that will stay positive? I wouldn't be so sure. While this is definitely a nice surprise, Aphria shares are still likely to be volatile over the next year. This week is a nice surprise for shareholders who have suffered from some pretty strong declines over the last few months.
For the full year, Aphria finished with a loss of just under $16.5 million on revenues of $237.1 million. They are well capitalized with cash/equivalents of $555.8 million on hand, so if they can stay reasonably close to profitability, the dilution that we've observed in the past should slow down.
Looking forward to fiscal 2020, Aphria anticipates revenues of $650 to $700 million. That guidance could represent a 175% increase in revenues year over fiscal year. For the 12 months ended May 31st, Aphria reported Adjusted EBITDA of $27.7 million. For fiscal 2020, they anticipate EBITDA of $88 million to $95 million. Obviously this is a very welcome forecast for a company that had fallen into the all too common trend of losses related to production expansion.
That revenue growth should create some pretty big potential if Aphria can capitalize on it. I find it rather difficult to gauge appropriate investment levels in relation to earnings as the earnings are volatile at best. Therefore, I tend to look at Aphria from a balance sheet perspective. The company had shareholder's equity of a little over $1.73 billion at the end of the fiscal fourth quarter. APHA has a market capitalization of around $1.65 billion (based on outstanding diluted shares as of May 31st, and a share price of $6.80). I like the stock at these levels, as you can still get it under book value. Yesterday's close of $5.20 would have been even better.
So do you buy? It's a personal preference on volatility, but long term, I think Aphria is starting to show its potential. With the revenue streams forecasted for fiscal 2020, and the general expansion of the company globally, I'd rate APHA as a long term buy.