Breaking News
0

Aphria Inc (TSX:APHA) Stock Has an Easy Path to 30% Upside

Stock MarketsJan 12, 2019 14:45
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Aphria (TSX:APHA)(NYSE:APHA) stock is in the dumps, down 50% from its highs in September. At $9 a share, Aphria stock is down to the same levels as late 2018, despite many volatile swings along the way.

Many well-known investors are flocking to the company. In December, notorious short-seller Citron Research published that Aphria could have up to 70% upside. The rationale was largely based on increasing mergers and acquisitions within the industry. The report specifically highlighted Altria’s 45% stake in Cronos Group Inc.

Citron Research believes that following Altria’s actions, a “floor has been established,” adding that it’s “time to rethink all valuations” for pot stocks. Aphria’s exposure to the Canadian market, it argued, was too large to ignore.

Later that month, Aphria shares were halted as Green Growth Brands prepared a bid for the company. The market largely ignored it, but it’s a solid sign that Aphria has at least 30% upside this year.

Aphria is putting up a fight On December 31, Green Growth reaffirmed its “commitment to launch an offer to purchase all of the issued and outstanding common shares of Aphria Inc.” If the deal goes through, Aphria shareholders will own 60% of the combined company. Meanwhile, Green Growth shareholders will own about 34%. The rest will be controlled by debt holders.

Green Growth is doing its best to convince Aphria’s management team, but it’s facing an uphill battle. Green Growth argues that the merger will “create an unparalleled North American player with operations on both sides of the border.” Others are less convinced. Hindenburg Research, for example, called the merger “non-credible.”

Aphria created an independent committee of directors to consider the bid but recently noted that the deal suggests a significant discount to the company’s potential value.

If Green Growth doesn’t succeed, another acquirer will According to a recent New York Times article, “big companies are unlikely to make major moves in the American market until recreational use of THC products is legal at a federal level.” This will provide smaller companies like Aphria the ability to grow without facing the multi-billion-dollar budgets of players like big tobacco.

Dozens of multi-national corporations have indicated a growing interest in the cannabis market. Judging by recent activity, they’ll likely enter via acquisition, rather than start from scratch. There’s simply too much regulation and red tape to enter the market in any other way. Additionally, the small size of most cannabis players (most are under $10 billion) will make it easy for big players to gobble them up. Financing won’t be a problem.

Let’s run some math to determine a potential acquisition price.

Over the last 12 months, Aphria has generated more than US$35 million of revenue. That’s similar to what MedReleaf produced before being acquired by Aurora for US$2.5 billion. At that price, Aphria stock should be worth more than 30% more than current levels.

As the industry matures, and players like Aphria solidify their first-mover positions, anticipate the required takeout price to rise, especially as competition for deals heats up following any federal action in the U.S.

In its report, Citron Research noted that “Aphria has a shot at increased value through becoming the next platform company or being taken out entirely (and solving others’ problems).” Judging by the growing interest by multi-billion-dollar, international corporations, it’s difficult to disagree with that assessment.

With a takeover bid already in the works, plus the backing of previous acquisition multiples, Aphria has a clear shot to rise 30% or more in 2019.

Fool contributor Ryan Vanzo has no position in any stocks mentioned.

This Article Was First Published on The Motley Fool

Aphria Inc (TSX:APHA) Stock Has an Easy Path to 30% Upside
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email