Aphria Inc (TSE:APH) Works Into Short Term Resistance Area—What Comes Next

Benjamin A. Smith

Aphria Inc (TSE:APH) (OTCMKTS:APHQF) (FRA:10E) is continuing its out-performance versus the rest of the sector heading into the midday. The stock is up an impressive ↑20.98% since Canaccord Genuity reiterated their market call on one Canada’s largest licensed producers one week ago. With prices heading into near-term resistance zones, we look at what investors can expect next.

Currently, Aphria is trading higher by $0.45 to $12.55/share (↑3.72%). This is in contrast to a ↓0.48% decline registered by the Midas Letter Canadian Cannabis Composite Index. As stated in the linked article above, our May 8 market outlook on Aphria was dead-on; here’s what we wrote:

Unless the broad market craters, I expect Aphria can work into the $12.50 area (on a short term basis) as valuation plays catch-up to its peers. They may still trade at a discount, buy 2.5x its peer group seems extreme. Today’s volume profile was a positive indication there’s more short term upside here.

Now that we’re there, what should investors and swing traders sensitive to entry points expect next? My crystal ball is showing two distinct trends which should permeate the stock over the intermediate term:

1) Valuation spreads will continue to narrow (slowly) versus the top end of the LP spectrum and

2) Aphria’s notable out-performance versus the broad market will begin to fade

In regards to point number #1, Big American media has started to catch wind of the narrative Canaccord and Midas Letter elucidated last week. In yesterday’s segment of Fast Money, CNBC cannabis “analyst” Tim Seymour reiterated his affection for Aphria due to the inexpensiveness of the stock relative to its peers (roughly half of EV/EBITDA). Watch:

While nothing new was presented here, the strong media reinforcement doesn’t hurt. With that narrative fully entrenched in investor’s sentimental psyche (rightfully so, in our opinion), I expect this be a modest tailwind for Aphria in the coming weeks—at least until EV/EBITDA valuations narrow to a more palatable level.

With that said, the robust out-performance vis-à-vis the rest of the market can’t last forever. To advance meaningfully past near term resistance in the short term, either the broad market will need to keep flying (as experienced yesterday), or Aphria will require a distinct catalyst to propel prices towards resistance zone #2.

Again, the tailwind of narrowing valuation spreads should work in their favor, but the broad market will again start to become the tail that wags the dog.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

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