Tilray (NASDAQ:TLRY) stock has been one of the few popular cannabis stocks to struggle this year. Tilray stock was thrust into the spotlight when the shares went from $22.50 in August to a 52-week high of $300 in September. Yeah, that’ll get some attention!
But just because TLRY stock price once reached $300 does not mean that, at $44 now, TLRY stock is a six-bagger waiting to happen. Of all the leading cannabis stocks to choose from, Tilray stock is the one I like the least.
Over the last three months and the last six months, it’s the worst performer among a group of many marijuana stocks, including Tilray, Canopy Growth (NYSE:CGC), Aurora Cannabis (NYSE:ACB), New Age Beverages (NASDAQ:NBEV), Cronos Group (NASDAQ:CRON) and even the Alternative Harvest ETF (NYSEARCA:MJ).
Are investors missing something important about Tilray stock, though? Why is it underperforming in the manner that it is?
When it comes to cannabis stocks, other names seem more attractive. Many consider the most “blue chip” of the bunch to be CGC, which received a multi-billion dollar investment from Constellation Brands (NYSE:STZ). Similarly, Aurora is on the cusp of a potential breakout. After looking at TLRY, though, I believe it doesn’t have the good fundamentals of a CGC and its charts lack any bullish momentum.
Assessing the Valuation of Tilray Stock
Some parts of Tilray’s income statement look good. For instance, analysts, on average, expect its revenue to surge 320% this year to $181 million. They forecast another surge in 2020, too, with their estimates, on average, calling for growth in excess of 100% to $360 million. To go from $43 million in sales in 2018 to $360 million in 2020 is no small feat. It doesn’t matter if we’re talking about tech companies or cannabis makers; that’s incredible growth.
Because of that growth, you can see why big businesses are so eager to get involved in cannabis. These players range from tobacco conglomerates to wine, beer and spirits companies. And many retail investors, of course, have been drawn to cannabis stocks.
If TLRY can generate $350+ million in sales in fiscal 2020 and its operations break even, the owners of TLRY stock may see a payday. As of now, analysts’ consensus estimates call for a loss of 67 cents per share this year, but a 2 cent per share profit in 2020.
On the balance sheet, Tilray has $325.4 million in cash and short-term investments. That’s down quarter-over-quarter and it will cause some to wonder whether TLRY can become sustainably cash-flow positive and whether it will have to raise or borrow more money. After all, many cannabis players are busy snapping up smaller companies right now. The company took on, ironically, $420.3 million in debt last quarter. That grew to $422.8 million last quarter, while its “other liabilities” increased to $92.7 million.
These are not absurd levels of debt, considering that the market cap of Tilray stock is $4.5 billion. But what happens if TLRY stock price decreases? More importantly, will it? Let’s look at the charts of Tilray stock.
When I look at the chart of TLRY stock, its massive downtrend isn’t hard to spot. TLRY has made a few breakout attempts, but for the most part, it has continued to drop since its feverish rally in September. I recommended TLRY stock during its quick rally from $70 to $100 in January, but more or less, I have not been optimistic on Tilray stock since then.
My sentiment towards TLRY isn’t changing now. Before that can happen, this downtrend will have to end. Specifically, Tilray continues to make a series of lower lows and lower highs. Until it can start putting in higher lows and making higher highs, as well as turning its key moving averages into support instead of resistance, Tilray stock will not be attractive.
It’s encouraging to finally see Tilray fill the August gap that helped fuel the stock’s 1,200% run. While maybe that will be enough to get momentum traders to flip the trend, I’m not betting on TLRY stock until I actually see the bulls regain momentum.