Due diligence is an important part of following stock activity and Stockhouse’s audience caught the full effect of accountability in reporting this week.
A quick check of Bullboard activity shows one company is by far the most talked about - Aphria Inc. (TSX: APHA, OTCQB: APHQF, Forum). At first glance, that would look like nothing out of the ordinary as the Leamington, Ontario-based cannabis producer is often the topic of discussion, but this week it wasn’t its shipment to Shoppers Drug Mart or its German pharma acquisition that had people’s attention, but the case of media accountability…or “fake news”, as it were.
Having been battered by short-sellers for much of 2018, in December Hindenberg Research published a report with Quintessential Capital Management that called Aphria's Latin American and Caribbean assets “virtually worthless”, accusing these assets of having little or no sales and operating activity and diverting funds from shareholders and into its own pockets.
(Screenshot from Hindenburg report.)
Reading that a $193 million (CAD) Jamaican building was sitting vacant, Bloomberg sent one lucky investigative journalist from Toronto to sniff out the situation.
She found many discrepancies from the report to reality, beginning with the most obvious, the building was set up and shelved. While the report said cannabis wasn’t legal in Jamaica, legalization is expected later this year. Third, the building’s value was inflated by QCM report to $280 million, a figure not found published anywhere else.
(Screenshot from Bloomberg article.)
Speaking of publishing, another report published Thursday was much more favourable toward Aphria.
Haywood Capital Marketssent its own people to the company’s sites in Jamaica, Colombia, Argentina and Leamington. Back home, the analysts estimated revenue for the company would top $138.4 million (FYE May 31), reaching $770 by 2021. They settled on the assessment that Aphria’s shares are currently undervalued and will continue to trade with volatility, but gave a “buy” stamp on its shares nonetheless. The report also concluded with these thoughts:
“There has been an overreaction on the sell side over the last month that has resulted in the current share price trading at a discount to the Canadian assets alone, creating a unique buying opportunity.”
Readers could check QCM’s social media for reaction to this, but they have all but gone on lockdown.
(Stockhouse quotepage, T.APH Jan 2018 - 2019. Click to enlarge).
While the initial report had left a bruise on Aphria’s stock, the follow-up investigation seems to have repaired some of the recent damage.
Like a patient seeking treatment for a potentially serious condition, a second opinion can often sway an important decision. In this case, with Aphria’s shares trading on the low side, bad news could be good news for investors.