Industry Spotlight

Aphria, Tilray, Canopy Growth: which share price is the best cannabis bet?

Cannabis producers Aphria [APHA], Canopy Growth [WEED], Tilray [TLRY] and Aurora Cannabis’s [ACB] share prices have come in for a rough time recently. Mounting debt, oversupply problems and falling sales have seen disappointing revenues and, in some cases, plummeting share prices.
 
Yet analysts remain optimistic. Partly this is due to the expectation that changes in US federal law will allow Canadian cannabis producers to enter the burgeoning market south of the border. And it’s a huge market. Sales of cannabis in the US are forecast to grow to $20 billion by 2024, up from $1.9 billion in 2018 according to BDS Analytics.
 
But is the optimism justified? We weigh up the growth potential for these stocks.
 
 
Aphria share price
 
Aphria’s share price has plummeted since its February high of C$10.84 and now trades 26% below its 52-week high.
 
 
While a price-to-book ratio of 1.27 means the stock isn't exactly overrated, a P/E ratio of 22.78 and RoE of -3.03% doesn’t signal a great return relative to the share price. However, earnings per share of C$0.16 is better than most of its peers.
 
For investors, Aphria might be a long-term investment. Despite a sky-high quarterly earnings growth of 616.70%, Aphria's EBITDA loss of C$45.67 million means the company has some way to go before it becomes profitable. 
 
Seaport Global analyst Brett Hundley rates the stock a "buy” even though he cut his price target from C$16 to C$13. The sustained optimism is based on the analyst’s estimate that, by 2021, Aphria will be free cash flow-positive, thus mitigating the need to borrow funds from bankers. If the price target is hit, this would be a strong 44% upside on the current share price.
 
 
Canopy Growth stock
 
One company hoping to take advantage of an opening up of the US market is Canopy Growth. On Thursday, Canopy announced a planned merger with US equivalent Acreage Holdings in a deal worth C$3.4 billion. According to Stefiel analyst Andrew Carter, this gives Canopy a strategic advantage over its Canadian rivals in any attempt to roll up the US market.
 
Yet Q4 results saw Canopy report an EBITDA loss of C$98 million. This massively missed Wall Street expectations for losses of C$63 million.  Revenue from cannabis sales was also down, coming in at C$70 million, falling 7.9% from the previous quarter. Earnings per share of -2.57 over the past 12 months will also give investors pause for thought.
 
Despite the disappointing numbers, the share price is up over 101% since the start of January. Among analysts, the stock has a consensus price target of C$76, which would represent a 43% upside if hit.
 
 
 Aurora CannabisCanopy GrowthAphriaTilray
EBITDA (C$ million)-205.82-240.67-45.67-70.88 (US$)
Quarterly revenue growth304.60%312.40%616.7%175.1%
EPS (C$)0.22-2.57-0.16-1.05 (US$)

Aphria, Tilray, Canopy Growth & Aurora stock comparison table, Yahoo finance, 24 June 2019

 

Tilray share price

Tilray’s share price has suffered a significant decline form the $150 it commanded back in October. Even as the wider stock market recovered in 2019, Tilray's downtrend continued on fears that Privateer Holdings would dump their entire 77% stake in the company. 
 
Right now, the share price is hovering just above $50, a huge 41% decline since the start of the year. Earnings per share are negative at -1.05, while EBITDA of -$70.88 million shows the company is having problems with profitability despite quarterly revenue growth of 175%. The stock supports a price-to-book ratio of 12.79, which is a little higher than its peers.

Tilray 1-year share price performance, CMC Markets, 24 June 2019

 

However, hope comes from expectations that the restrictions on Privateer selling their holdings could provide a catalyst for a rally in the short-term. There are also forecasts for strong revenue growth in 2020, with earnings also expected to soar. But what makes Tilray one to watch is the average analyst price target of $94.86. This would represent a huge 88% upside if hit.

 
Aurora Cannabis stock
 
Aurora Cannabis’s stock might be up a hefty 41% since the start of January, but it has been on a downward trend ever since hitting a high of 10.52 in March. Despite quarterly revenue growth of 304%, the company has struggled with profitability, with earnings down 125.35% last year. For 2020, expectations are that Aurora is expected to lose C$0.06 a share. The stock also has an EBITDA loss of C$205.82 million.
 
Yet investors are keen on the stock. Aurora’s trading volume comes in at 17.9 million shares a day, three times that of the next most traded cannabis stock. It also supports 0.22 earnings per share, which is better than most of its rivals. And earlier this month Aurora was the most popular trade on millennial investment app Robinhood. 
 

17.9million

Volume of Aurora shares traded per day

Back in March, Cowen analyst Vivien Azer upped her forecast for Aurora’s international medical marijuana market size from $9 billion by 2024, to $31 billion. Azer points to Aurora’s industry-leading market share in Canada, and potential for international expansion; the company already operates in 23 international markets. Cowen initiated coverage on Aurora with a price target of $14, which represents a 91% upside on the current share price.

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