Aphria (APHA) stock is a hot topic right now, and not just because the company’s product needs heat for activation. Just over a week ago, the Canadian cannabis operation saw its stock decline around 25% overnight following a brutal report alleging Aphria had purchased assets in Latin America and inflated the costs in reports to its investors. The research was detailed, with photographic evidence and documentation.
Haywood analyst Neal Gilmer says he does not believe the report is accurate in its entirety. In return, Gilmer reiterates a Buy rating, but does drop down his price target from $30 to $17 to “reflect current market sentiment.” (To watch Gilmer’s track record, click here)
“Following the release of reports of this nature, companies often trade at a discount due to an increase perceived risk by investors, regardless of the accuracy of the claims in the short report. As a result, we are lowering our target price to $17.00 based on a 2021 EBITDA multiple of 15x discounted by 10%. We continue to believe that Aphria provides a compelling investment both on its domestic operations and the optionality provided by the international opportunities. However, it is clear that investors are putting more faith in the authors of the short report. While we acknowledge that it will take time for Aphria to emerge from this report, we remain of the view that the Company has solid domestic operations and an expanding international footprint. We believe this sell-off provides an attractive entry point for risk tolerant investors as we expect volatility to be escalated in the near-term,” Gilmer said.
The analyst suggests it is unfair to ignore the response from Aphria, which includes a detailed update of operations in Colombia, Argentina and Jamaica (the Latin American countries highlighted in the short report). Furthermore, Gilmer sees production capacity of 255,000 kg per year. As such, he believes the shares are undervalued.
Analysts, nevertheless, are bullish on the stock across the board. TipRanks analytics shows within the last three months, 10 were bullish and 1 bearish. The consensus price target of $22 shows a potential upside of 258%. (See APHA’s price targets and analyst ratings on TipRanks)