Canadian cannabis producer Aphria (NASDAQ:APHA) has faced the same issues that other marijuana companies have dealt with for the past couple of years. Due to an oversupply of the product and disappointment with the cannabis derivatives market, Aphria stock hasn’t had a sustained breakout in a long time.

The onset of the novel coronavirus didn’t help Aphria, either. The idea that cannabis companies would flourish because everybody would stay home and smoke pot turned out to be more of a fantasy than a reality.

So, where does this leave prospective investors? We can certainly say that on a historical basis, the Aphria stock price is low. On the other hand, price isn’t the same as value. As Warren Buffett once famously said, price is what you pay but value is what you get.

What do you actually get with Aphria stock? Real value, or just a value trap? That’s the billion-dollar question and investors deserve an answer. So, let’s check the price action of the stock and then see if the company is on solid financial footing.

A Closer Look at Aphria Stock

The mania surrounding cannabis stocks of yesteryear can be seen in the historical price action of Aphria stock. Investors might recall the massive run-up to the $17 level in January of 2018. Then there was another spike to the $15.50 area in September of that year.

It’s been a slow, awful ride down since that time. Within the past year, the Aphria stock price has been as low as $1.95. Much of that drawdown was undoubtedly precipitated by the coronavirus crisis.

In early October, Aphria shares were trading at $4 and change. So, at least the bulls managed to double the price from the low set in March. Still, there’s a long way to go before the trading community floods back into Aphria stock.

The good news here is that Aphria stock’s trailing 12-month price-to-earnings ratio is a very reasonable 14.75. Some cannabis companies don’t even have a P/E ratio because they have no earnings at all.

Therefore, by that measure at least, an argument could be made that there’s plenty of value in Aphria stock.

The Big Opportunity

Even amid a challenging period for marijuana growers generally, Aphria managed to pull off a big win in fiscal year 2020.

As evidence of this, CEO Irwin Simon reported that Aphria’s recreational cannabis sales were up by 28% during that time frame. In light of this, Simon commented, “That’s where the big opportunity is, it’s recreational cannabis.”

Moreover, for the company’s fourth fiscal quarter, Aphria’s gross revenues in the adult use segment increased by 27% on a quarter-over-quarter basis to 56.7 million CAD. Impressively, this marks Aphria’s fifth consecutive quarter of growth in this category.

Also importantly, Aphria is producing its cannabis in a cost-efficient manner. In fact, Aphria’s cash cost to produce dried cannabis in the fourth quarter was 88 cents (in Canadian dollars) per gram. That signifies a decrease of 5% compared to the prior quarter.

Financial Health

It’s always a good idea to give any company a financial health checkup before considering an investment in that company.

Simon evidently feels quite confident about Aphria’s fiscal position. On that topic, Simon said, “We have generated some of the strongest sales growth, we have one of the strongest balance sheets and cash positions, compelling consumer brands and a well-diversified global business.”

Fortunately, this isn’t just braggadocio as there’s data to support Simon’s claims. With cash and investments worth 500 million CAD, Aphria can cover its long-term debt of 129.6 million CAD as well as the company’s 270.8 million CAD worth of convertible-note liabilities.

Moreover, it’s clear that Aphria does indeed have an international reach. In particular, the company has noteworthy operations in Latin America and Germany. This geographic diversification puts Aphria several steps ahead of a number of cannabis companies with regional limitations.

The Bottom Line

In the final analysis, Aphria stock holders can remain confident that they’re getting a good price and a compelling value. Strong recreational cannabis sales, a firm cash position and geographic diversification will stand the company and its investors in good stead.

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