N00bInvesTOR Hi everyone, it's me already, I decided that I can continue to post even if I don't have shares anymore. Majority of my posts will be more Price Action Analysis.
Here was my thank you post if you missed it, it's less epic now that you are reading this post but whatever
https://stockhouse.com/companies/bullboard?symbol=t.apha&postid=31722757 Before I let you now what I think about Q1 2021 results I want to talk about trader psychology
Trader Psychology + Market Expectations If you didn't figure it out after Q4 2020 I think that you have now figured it out. Don't get greedy, it's important to take money off the table, will give an example in another paragraph.
For the market expectations part, it's sad but this is how it works, there is people called "Analysts" that make estimates on what will the numbers look like when a company releases earning. You can access market expectations if you click on the link below :
https://ca.finance.yahoo.com/quote/APHA.TO/analysis?p=APHA.TO You can see that :
- Average Estimate is 159,65 M $
- Low Estimate is 153.93 M $
- High Estimate is 170.9 M$
Now if you have been following my posts you know that I love the MD&A document
Here is the link to the Q1 2020 MD&A :
https://aphriainc.com/wp-content/uploads/2020/10/aphria-Q1-2021-management-discussion-and-analysis.pdf Page 20, you can see that Aphria reported 145,689 M $. You can see that not only is it below average estimate, it is also below the Low Estimate. Unfortunately, the stock market doesn't want to hear your excuses or make sense out of them, if you don't meet or exceed market expectations, your share price will tank.
Psychology Part I'm using prices that are in USD $ from the APHA that trades on the Nasdaq
The stock went from 4.17 (September 24th Low of the day)
To 6.44 (October 12th High of the day)
That's more than a 50% rally before Q1 2020 results went out. When there is a lot of Hype and big market expectations, the small ounce of deception or any excuse will lead into an automatic sell off because the company doesn't meet or exceed market expectations.
CC Pharma 17 M decline in distribution revenue.That small excuse/dissapointement got all the attention and drowned all the improvements Aphria made (willl give more details later.)
History Part The same story happened, a 49% rally (from 4.13 to 6.15)
Hype and market expectations were high, which created a rally environment again.
Unfortunately, we had 2 bad surprises when Q4 2020 results were out :
- 64 M non recurrent impairment
- 23 M non recurrent operating loss
Which is a big 87 M negative surprise. This small detail/excuse has no impact on Aphria improvements but when you don't meet or exceed market expectations the share price will tank.
So basically, when you rally hard into earnings, if you don't meet or exceed market expectations, the market translates it into :
Oh well Aphria is not a good company, it was all pump, time to rush to the exit, sell button.
Again, unfortunately the stock market doesn't want to hear your excuses or make sense out of them. Personally I think that the results were amazing (will do a paragraph)
Here is a chart to illustrate what happened before Q4 2020 and what happened after.
1 Candle = Price Action of 1 Day
APHA on the Nasdaq, USD $ Price
https://www.tradingview.com/x/MS0lYSk3/ Protecting your gains / taking money off the table Because of previous history even if history is not a 100% indicator of the future, it's a good indicator. That's what Price action analysis is all about , taking history and previous price action to predict the direction the stock will take.
What is the goal of protecting your gains and taking money off the table?
It allows you to have cash on hands to buy back shares at lower price than you sold them. That means that you will have the opportunity to increase the amount of shares you have
You can't time the market but you have to accept that a stock doesn't shoot to the moon and that consolidation is part of the game.
Even if it involves selling shares at a loss because when you will buy back at a lower price than you sold in the first place, it will take you closer to break even, especially if you believe in the fundamental of a company. That's exactly what I'm doing. I have no more shares for the moment but if I wouldn't of sold shares before Q4 2020 and Q1 2021 I would be in ultimate pain today.
Here is a chart to illustrate what happened before Q1 2021
1 Candle = Price Action of 1 Day
APHA on the Nasdaq, USD $ Price
https://www.tradingview.com/x/BCkVn3YO/ Like I said, Historical Price action is not a guarantee of future price action but if you were scared of a Deja Vu or know are scared of another bad surprise and the effect it will have on Market expecations, selling 25% minimum can't be a bad idea. I personally sold 90% and kept 10% for earnings.
As a result I gave back gains on only 10% of my total position.
Because I took money off the table, If I decide to buy again, I can buy 30% more shares than I use to have if I were to buy at today closing price 4.65$
Worst case scenario would of been that I miss out on additional gains. I have conservative style, rather miss out on additional gains then give back profits.
I personally don't plan to buy shares until U.S.A Elections Outcome
Q1 2021 Review + Highlight If you didn't listen to the conference call and don't believe my Highlight, here's the transcript
https://www.fool.com/earnings/call-transcripts/2020/10/15/aphria-inc-apha-q1-2021-earnings-call-transcript/ - In Ontario, for the quarter Aphria reported, they have 17% market share
- In Allberta,for the month of September, Aphria has a 23% market share
- Aphria experiences 60% more sales than the next highest LP in Ontario
- As Irwin mentioned, we press release that we have shipped EU GMP certified product to Germany in the last two weeks, and we anticipate sales by CC Pharma, the triggering event for us to recall the sales in our consolidated results to occur in the next two weeks
For the last bullet point, I'm not sure to understand, would have to email investor relations, my understanding is that once CC pharma willl selll it, in 2 weeks, they will count it in Q1 2021.
- We anticipate a much lower capex in the second quarter somewhere between $8 million and $13 million as we complete our German expansion
- In the first quarter, the company's cash position decreased by $97 million. The majority of this decrease related to onetime items that are not anticipated to continue in the future, most particularly $19 million related to decreases in the U.S.
- We continue to believe we will be free cash flow positive in Q3
Now I expect that medical sales will be the same for Q2 2021 or lower because :
- The volume of these visits was noticeably down during the quarter. Post-quarter-end, we are beginning to see improvement. But given the continuing global health crisis, these activities will continue to impact both distribution revenue and medical cannabis revenue going forward. Focusing on our financial results for this quarter in more detail
The last 2 things that really impressed me are at the page 20 of the Q1 2020 MD&A
- Cannabis Revenues (Medical + Recreational) > Distribution Revenue
82,229 M $ VS 82,198 M $. That's significant and means that CC Pharma will soon not be the difference maker for profitability or a strong bad surprise factor.
Page 20 also, look what they said about B!NGO, I don't know if customers were able to buy it for the last 3 months but it deserves a WOW!
- Increase in the adult-use cannabis sales by 5,949.0 kg equivalents to 16,780.3 kg equivalents sold in the current quarter, a 54.9% increase from the prior quarter. This increase was largely driven by the release of the Company’s release of large format products and new economy brand B!NGO, which provided 6,340.4 kgs and $18,748 of additional sales during the quarter as part of the initial pipeline fill of these new offerings.
Conclusion CC Pharma did 99,137 Distribution revenue in Q4 2020 vs 82,198 M $ in Q1 2021
This is the only reason why the stock tanked, if you take that 17 M $ difference and add it to 145,689 M$ it totals to 162,689 M$ which is higher than the Average Estimate of 159,65 M $
As ridicioulus as it sounds, it's the only reason why Aphria missed market expectations, from a fundamental standpoint, I don't really care about CC Pharma, Aphria is dominating recreational sales and has been increasing it's market share for 6 quarters in a row.
Once U.S.A elections are out of my way (personally a bad experience 4 years ago) I prefer to avoid repeating history even if I learned a lot between 4 years ago and today.
I strongly consider starting a position in APHA after the USA elections are out of my way.
All this post to remind you market expectations impact on the share price are stronger than fundamentals. This is why you need to protect your gains especially after a big 50% rally.
You can complain all you want and blame Irwin but the truth is that the stock market is a dirty game and Aphria is doing great so congratulations if you took profits and are looking to buy Aphria again in the future.
Disclaimer
This post is for educational purposes, this is informative content. If you decide to use this post to build a strategy, buy or sell shares, I am not responsible.