Pass On Tilray Stock If You’re Looking for Cannabis Plays

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We’re just over a month into the new decade and investors are looking for guidance in the stock market. Cannabis stocks are showing signs of life, but not all are created equal. Tilray (NASDAQ:TLRY) may have spiked earlier this month, but it’s still got a lot of question marks surrounding it.

This Surge in Tilray Stock May Not Be a One-off Event

Source: Jarretera / Shutterstock.com

Believe it or not, the technicals are actually starting to improve a bit for Tilray. At the very least, they are giving the bulls a visible risk/reward in the setup. But for the cannabis industry, we need to think about the bigger picture — where the industry is and where it is going.

Clearly the world is taking a looser stance against cannabis, realizing that there are benefits to its use. Whether that’s medicinally or recreationally, the point is clear: cannabis is growing more popular with consumers.

Investing in Cannabis

The cannabis space went from a booming bull market to a painful bear market. While the rest of the market was rallying, many of these names were trapped in painful downtrends. Finally, the floor gave out in November for many stocks as share prices plunged lower.

Those that recovered gave investors a reasonable risk/reward low to trade against. Tilray stock wasn’t among those stocks, mainly because the bottom never blew out in dramatic fashion. It did however go on to make new lows in December before recovering.

My biggest issue with Tilray stock isn’t the chart, though. Instead, it’s the financials that have me skeptical. The company has negative operating income and generates a free cash flow deficit (one that’s worsening, not improving). Its balance sheet is so-so, but lacks the staying power of several of its peers.

Over the last four quarters of business, Tilray’s total cash has gone from $517.6 million to $325.4 million to $220.8 million to $122.3 million.

Does that inspire confidence?

Current assets have sank 40% to $330 million in that same timeframe, while current liabilities have increased five-fold from $25.9 million to $130.2 million. Although, it’s worth pointing out that they have decreased from $175.9 million in the prior quarter.

At the end of the day, the cannabis space is a rapidly growing industry and several names stand to benefit. Tilray stock may be one of them. But I prefer to place my bets with stocks that have better financials and better charts. That includes names like Canopy Growth (NYSE:CGC) and Aphria (NYSE:APHA).

Trading Tilray Stock


Click to Enlarge
Chart of Tilray stock

Source: Chart courtesy of StockCharts.com

When you push aside the fundamentals, the technicals do shine a more optimistic light.

Tilray stock hit a low of $15.01 earlier this year, before popping up to $22.50. Shares consolidated near those highs for few weeks, digesting below the declining 100-day moving average. This metric has been a tough mark of resistance for some time now and reclaiming it will do wonders for the bulls.

For now though, Tilray stock has yet to do so.

Instead, shares pulled back, falling below both the 20-day and 50-day moving averages. On the plus side, the stock is holding up over the backside of prior downtrend resistance (blue line). Although, it’s also worth pointing out that TLRY has a myriad of downtrend marks to be aware of on longer time frames.

In any regard, bulls have their setup: they can be long against a low of $15. A close below this mark signals that the long trade is still not ready and more downside may be ahead. So long as $15 holds as support though, Tilray stock may be trying to bottom.

On a move over the 100-day moving average, momentum buyers may up their stake as a move to $25 could be on the way. That comes if Tilray stock is also able to hurdle $22.50, which held shares in check last month. Over $25 puts $30 on the table.

Here’s the bottom line: Tilray stock now has a tradable low at $15. Below that mark and the trade may be finished. Over the 100-day moving average could kickstart more momentum to the upside.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long APHA.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.


Article printed from InvestorPlace Media, https://investorplace.com/2020/02/pass-on-tilray-stock-if-youre-looking-for-cannabis-plays/.

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