Shares of Tilray (NASDAQ:TLRY) stock will be in focus on Wednesday, after the company reports its quarterly results on Tuesday after the close. With cannabis stocks in focus lately, a strong quarter would go a long way to helping reverse the price action in TLRY stock and potentially turning the group around.
Cannabis stocks tend to be volatile, as there are a lot of considerations in play. There’s the M&A factor to consider, as large companies plunk down lots of cash to get involved in cannabis. Take Constellation Brands (NYSE:STZ) investing $4 billion in Canopy Growth (NYSE:CGC) (which reports later this week) or Altria (NYSE:MO) dumping $1.8 billion in Cronos Group (NASDAQ:CRON).
There are also regulatory wins and worries to consider, as part of the bullish thesis lies with various governments becoming more open-minded to the benefits of cannabis. There’s also the fact that while many of these names boast incredible revenue growth, they also carry huge valuation risks.
Add it all together and you get a volatile group of up-and-coming growth stocks.
Analysts expect Tilray to lose 25 cents per share this quarter, responsible for roughly one-quarter of the full-year loss of 99 cents per share they are forecasting for 2019. However, so long as the cash burn isn’t too high and the losses are not too wide, the bottom line is not the focus at the moment.
Instead, the focus is sales. In that respect, analysts have some incredible forecasts. They expect revenue to jump ~322% this quarter to $41.1 million. That’s slightly higher growth than their full-year forecasts for 308% growth, with estimates calling for $176.1 million in 2019 sales.
The question is, what will it take for it to matter? Should TLRY beat on both earnings and revenue, will it be enough to entice investors?
If the climate of the market turns more bullish, rather than remaining fearful, a beat could fuel Tilray higher. If the markets return to a risk-off approach in the next few weeks or months though, TLRY, CGC, and other cannabis players may find their stocks out of favor with investors.
Remember, this is a stock that trades with a market cap value of $4.3 billion. At $176 million in sales, we’re talking about 24 times this year’s revenue. The entity doesn’t turn a profit, and while the growth rate is still strong, that’s a big valuation. Expectations call for another 103% growth in fiscal 2020, but you can see why there may be some concern.
Before we do anything, we have to see the quarter from TLRY. Perhaps more importantly though, we have to see how the stock reacts to the quarter, which will tell us where investors stand on the name.
To do that, let’s look at the charts.
Trading TLRY Stock
Click to Enlarge Tilray stock has been in a painful downtrend since erupting higher in Q3 2018. Since then, a series of lower highs has continued to squeeze the stock lower and lower (purple line). However, that mood changed in June.
Shares bottomed near $34.25, chopping near that mark for several consecutive sessions. TLRY then went on to reclaim its 20-day and 50-day moving averages, pushing through downtrend resistance in the process. It hasn’t been completely smooth sailing during that time, with shares falling along that prior resistance level until hitting the $39 area. The good news though? Prior resistance is now acting as support, while the stock registered a higher low (blue line). That allows us to put in a short-term uptrend line.
TLRY stock is not completely out of the woods here, but its chart is looking more constructive.
Should we get positive Tilray news from its quarterly results, see that shares stay north of the 20-day and 50-day moving averages. With any luck, TLRY can reclaim the $47 to $50 area, and possibly begin a march back to its 200-day moving currently near $67.
If the reaction is negative, I would love to see uptrend support hold. However, one “must-hold” spot for me is $39.31, to keep the trend of higher lows in play. If that fails, bulls need to make sure Tilray stock doesn’t fall back below prior downtrend support.