Aphria Inc Hoping For a Post-Earnings Reaction About-Face

Aphria Inc (TSE:APH) (OTCMKTS:APHQF) (FRA:10E) is again running hard into their upcoming earnings release on Wednesday, August 1st. Although the company has delivered solid results in the previous two reporting events in 2018, the stock slumped badly in the aftermath both times. Investors and principles will be hoping this time, it will be a case of third time’s a charm.

The post-market reaction in Aphria common shares after its April 16th earnings release was anything but ideal. After gaping and holding most of its initial gains, shares cratered ↓17.59 in the five sessions following the report. This, despite announcing solid operating metrics which included a 238% YoY increase ($2.9 million) in adjusted EBITDA in the quarter, cannabis grow cash costs dipping back under $1.00/gram, and most operational milestones achieved.

Granted, Aphria had run ↑17.52% in the four days leading up to earnings in the first place, so the post-reaction essentially washed-out acquired gains. But with the market consolidating after another periodic monolithic swoon, Aphria sharply underperformed the prevailing trend. It was an odd conclusion for a company that could hardly be expected to perform better.

Aphria’s pre/post January earnings reaction mirrored April’s modus operandi to a “T”. In the three days leading up to the announcement, the stock gained ↑19.46%, only to fall ↓20.18% in the two subsequent post-earnings session. Although Aphria was almost exclusively trading-off the broad market trend (the market was dumping from extreme blow-off bubble highs), the fact remains: solid earnings presaged another sharp decline. Bubble or no bubble, sellers did not hesitate to stampede away after yet another solid report.

So with Q4 earnings results upcoming, the company finds itself in the midst of another price run heading into earnings. But there’s a difference this time: Aphria is doing this all on its own. There is no broad sector price spike raising all boats, or recent material news boosting the bid. With the benchmark Horizons Marijuana Life Sciences Index ETF stuck at 3-month lows, Aphria’s price action is building-in some sort of undefined anticipation—albeit to a shallower degree.

And what exactly could that be? It really depends who you ask.

The Midas Letter highlighted earlier this month that Aphria delayed their fourth quarter earnings release to August 1st—which just happened to coincide with Molson Coors Bewing Co. Q2 earnings results. While we believe the move is probably a coincidental maneuver to harmonize a beginning-of-the-month reporting cycle, it’s also an action Aphria would take if they were getting into bed with a company like Molson Coors. After all, both companies would be reporting certain coincidental operating results and balance sheet line items at that point.

Aphria CEO Vic Neufeld (10:00): So we have a series of brand activation tactics and activities all lined up. I refer to it as the ‘dominoes are ready to fall’… It’s a matter of when different organizations view the timeliness of this activation, so we’re still waiting. 

I believe the current run reflects some latent optimism that either/or post-earnings conference calls might reveal some nugget of future cooperation between both companies.

Outside of that Hail Mary, the run is likely pricing-in anticipation of more solid operating results. Although most cannabis earnings to date have not moved the needle, there have been exceptions.

This morning, OrganiGram Holdings Inc. spiked almost nine percent, trough-to-peak, after record Q3 financial results which included huge percentage increases in three & nine months net sales, and “all-in” cultivation costs of $0.80 per gram.

Should Aphria “wow” the market with similar such operating results, there could be room for similar upside extension. Keep in mind however, that OrganiGram was trading near 3-month low at the time of today’s announcement, and it currently trading below the opening gap low of the day.

That’s exactly the type of sell-the-news event Aphria wishes to avoid this time around.

Final Thoughts

As I write this article, Aphria has just gone negative on the day—now off about ↓4.50% from today’s intraday high. This would be consistent with OrganiGram’s performance following today’s post-earnings gap-up, while demonstrating selling-the-news is still in vogue. Under such bear market pretexts, the company will have its work cut out for it unless it can “wow” the market in some yet to be determined way.

Original article: Aphria Inc Hoping For a Post-Earnings Reaction About-Face

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