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Aurora Cannabis vs. Aphria: Which Stock is a Better Buy?

Biden’s win has boosted the $13.6 billion US cannabis industry, and companies like Aurora Cannabis (ACB) and Aphria (APHA). Will APHA lead the race to garner a higher market share, or will ACB recover from its prior year-losses to regain its luster? Read more to find out.

The Biden presidency will boost the medical cannabis industry. Like the Obama DOJ, Biden’s DOJ will not prioritize the enforcement of cannabis laws. 

This bodes well for Canadian based companies Aurora Cannabis, Inc. (ACB) and Aphria, Inc. (APHA), allowing them to enter the United States markets easily. APHA has already entered into a strategic partnership to ensure unimpeded access to the US markets, while ACB is recovering from the prior losses by engaging in supply agreements.

Both companies generated decent returns over the past six months. While ACB gained 22.1%, APHA returned 91.2%. In terms of past one-month performance, ACB is the clear winner with 48.1% gains versus APHA’s negative returns.

But which stock is a better buy now? Let’s find out.

Latest Movements

ACB is currently in the process of reducing costs through layoffs and shut down of unprofitable product lines. It is reportedly aiming to develop high-cost projects through external contractors to reduce overhead expenses for the next two quarters. This should allow the company to generate substantial profits from operations. ACB recently raised approximately $172.50 million through an underwritten public offering of 20 million shares, which is expected to fund the working capital requirements and expansion plans of the company, along with the general corporate expenses.

Earlier this year, APHA moved its listing from NYSE to NASDAQ. In this regard, APHA’s CEO Irwin D. Simon said, “Additionally, as a purpose-driven company, we believe Nasdaq will be a good fit for Aphria, particularly given our focus on, and the progress we have made, integrating ESG practices across our business."

APHA is currently in the process of acquiring a US-based Sweetwater brewing company for $300 million. This acquisition will give it access to the United States market. On November 2nd, APHA hired P.R. firm Wye communications to promote the company on an international level.

Earlier this month, APHA entered into a 5-year supply agreement with ODI Pharma AB to sell co-branded cannabis in Poland.

On October 7th, APHA announced completion of its first certified European Union Goods Manufacturing Practices (EU GMP) shipment of dried flowers to its wholly-owned subsidiary CC Pharma GmbH in Germany. The sale of APHA branded cannabis in the German market is expected to begin by the fiscal second quarter of 2021.

Recent Financial Results

ACB’s net revenue increased 4% year-over-year to $33.48 million in the third quarter ended September 2020. Gross margin increased 300 basis points to 38% over this period, while working capital grew 36% from the year-ago value to $201.43 million.

APHA’s net revenue increased 103% year-over-year to $62.50 million in the fiscal first quarter ended September 2020. Net income grew 16% from the year-ago value to $145.70 million, while adjusted EBITDA rose 17% from the prior-year quarter to $10 million.

Past and Expected Financial Performance

ACB’s revenue and total assets increased at a CAGR of 127.3% and 99.4%, respectively, over the past three years. APHA’s net revenue and total assets, on the other hand, rose at a CAGR of 193.5% and 95.9%, respectively, over the past three years.

Analysts expect ACB’s EPS to grow 95.4% for the fiscal year ending June 2021, and 52% for the fiscal year ending June 2022. Revenue is expected to rise by 13.7% next year, and 36.6% in 2022.

APHA’s EPS and revenue are expected to rise by 75.9% and 25.9%, respectively, in the fiscal year ending May 2021. The consensus revenue estimate indicates a 26% growth in 2022.

Profitability

APHA’s trailing 12-month revenue is 2.10 times what ACB generates. APHA is also more profitable with a gross margin of 39.2% compared to APHA’s negative value.

Valuation

In terms of trailing 12-month prices/sales, ACB is currently trading at 3.61x, which is slightly more expensive than APHA, which is currently trading at 3.54x. ACB is also more expensive in terms of trailing 12-month EV/sales (7.54x versus 3.95x).

POWR Ratings

APHA is rated “Buy” in our proprietary POWR Ratings system, while ACB is rated “Sell”. Here’s how the four components of overall POWR Rating are graded for both these stocks:

APHA has an “A” for Trade Grade and Peer Grade, and “B” for Buy & Hold Grade and Industry Rank. It is currently ranked #33 out of 240 stocks in the Medical- Pharmaceuticals industry.

ACB has a “B” for Industry Rank, “D” for Trade Grade and Peer Grade, and “F” for Buy & Hold Grade. It is currently ranked #92 in the same group.

The Winner

Despite being one of the most famous pot stocks, ACB generated losses in the third quarter ended in September 2020. This follows a billion-dollar (Canadian) loss incurred in 2019, primarily due to impairment expenses.

APHA, on the other hand, portrays a steady path for growth in its recent financials at a relatively lower valuation. The company’s strategic partnerships and expansion policies provide a clear pathway for entering the US markets soon, ensuring significant growth over the upcoming months, thus making it a better choice here. 

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ACB shares were trading at $6.87 per share on Monday afternoon, down $0.21 (-2.97%). Year-to-date, ACB has declined -73.50%, versus a 13.81% rise in the benchmark S&P 500 index during the same period.



About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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