This Underrated Pot Stock Is a Scorching Buy

A big challenge with investing in pot stocks is that bad returns by one company can send all the others into a tailspin. Aphria (NYSE: APHA) is a good example. The company has been one of the better-performing marijuana producers over the past year in terms of both sales growth and profitability. But that hasn't been enough to turn the stock price around, as a negative outlook for the industry as a whole has kept Aphria's valuation from rising this year despite positive results. Here's a closer look at why the stock is undervalued and why it could make for a solid investment today.

Profits are rare in the cannabis industry. As companies have grown, they've often gotten deeper and deeper into the red. But that hasn't been the case with Aphria. In the company's third-quarter results, released April 14, the pot producer showed that it had doubled its sales from the prior-year quarter while also posting a profit for the third time in four quarters.

Although the company did benefit from fair value adjustments, Aphria's also made progress in keeping its costs under control amid the high growth. Despite a big jump in revenue, general and administrative costs rose by a very reasonable 24%, while Aphria brought share-based compensation and market expenses down from the prior-year period. The company made further strides in bringing down its expenses when it announced on May 8 that it was repurchasing about CA$127.5 million of convertible notes. The move will bring down the company's debt and remove cash interest costs that total CA$6.7 million annually.

Source Fool.com