In the budding cannabis industry, there will be winners and losers. And for one-time heavyweight contender Tilray (NASDAQ:TLRY), a mixed earnings report has delivered another blow. But don’t think for a second Tilray stock is down for the count. Let me explain.
When a stock has lost 85% of its value in a little more than 8 months, that’s kind of scary. And when that stock has only been a publicly traded company for 10 months, positioned within a secular growth market, it’s hard not to be alarmed. That has been the story of TLRY. Still, following Tilray stock’s recent earnings release, a contrarian opportunity could finally be at hand.
Tilray Stock’s Numbers
The Canadian cannabis operator’s recent Q1 confessional offered Tilray investors some good news once they got beyond beyond its growing and wider-than-expected loss. Revenues topped consensus views and jumped sequentially. Cannabis sales volumes also grew. In fact, both metrics rose nearly 50% from the prior quarter. But that’s not all either.
Tilray’s sales growth actually topped dearly held marijuana stock peers Cronos (NASDAQ:CRON) and Aurora Cannabis’ (NYSE:ACB) numbers over the same period. As well, TLRY stock’s gains weren’t at the expense of gross margins which actually improved on the quarter.
Okay, so bears might point out Tilray’s sales are growing from a smaller base than both Cronos and Aurora. They might also note Tilray stock is still priced at a nose-bleeding 79x sales despite its massive slide from last September’s manic $300 top. I understand, well to a degree.
To be more fair, if marijuana stocks could be likened to a game of baseball, we’re barely done hearing the National Anthem for a market seemingly destined for secular growth despite all the legal and regulatory challenges. On that note, a contrarian investment in TLRY seems more reasonable, don’t you agree? And given Tilray’s fall from grace with investors, based on kilogram pricing shares are now on par with Canopy Growth (NYSE:CGC) as InvestorPlace contributor Luke Lango pointed out earlier this week. That’s also good, right?
Shares of Tilray have a bit more to offer today’s contrarian investors too. TLRY has a fairly comfortable nest egg of roughly $325 million in cash and investments to lean on. As well, the company has partnerships with drug outfit Novartis (NYSE:NVS) and Anheuser Busch Inbev (NYSE:BUD) which could prove important down the road.
Sure, Tilray’s relationships may not be a “here’s the money” investment like Cronos or Canopy Growth have secured. More to the point, Tilray obviously has the interest of much larger and established players. Furthermore, TLRY stock isn’t in need of funding anytime soon.
Lastly, being optimistic on TLRY stock when everyone else, even most of my fellow contributors at InvestorPlace, appear overwhelmingly bearish seems all the more reasonable from a contrarian viewpoint.
Tilray Stock Weekly Chart
Can I promise you Tilray, which looks a lot like Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) during their darkest days, will go on to be a legendary investment? No. But the case for a contrarian position has been made off the price chart. And one only needs to look at the supplied weekly view to reach a similar conclusion.
Still, I respect that TLRY stock has heavy short interest and recognize cannabis is a commodity-based industry. I’m willing to put a lid and a protective bottom on a contrarian investment in Tilray.
My recommendation is to wait for TLRY stock to confirm a weekly pivot bottom. That could happen as early as next week. At the same time, I’d suggest exiting the position if the technical low is voided. Tilray stock simply isn’t worth the risk of holding as a long-term investment.
Alternatively and more strongly, I’d recommend using Tilray’s very liquid options market to design an ironclad bullish strategy, such as collar or modified reverse fence strategy, in lieu buying a standalone stock position.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.