Tilray (NASDAQ:TLRY) management reported earnings last night, and the stock fell 5% on the headline in after hours trading. To be fair, it had almost closed almost up 4% in the session coming into the event so over the two days it’s a tepid response. This in fact is a win for the TLRY stock bulls because on the face of it, the results were disappointing. They missed earnings but a whole lot.
While the fundamentals are taking their time maturing into a favorable shorter-term thesis, the technical levels on the Tilray charts offer some guidance. As long as the bulls can hold above $7 per share then they would maintain a slight positive trend and avoid triggering a bearish pattern. This is what the fans need to build on their momentum. Else the sellers will try to target the March/April pivot near $5.50 per share.
The CEO tried to raise cheer by promising profitability by 2021, but so far investors remain reserved on that front.
TLRY Stock Seems Stuck in a Tar Pit
When a stock falls this far from grace, it becomes hard to argue the case for a full recovery. Tilray’s $300 high is never coming back without divine intervention. This shouldn’t upset the bulls because it is a reality they have to face.
They are not alone — the whole segment of cannabis stocks suffered a similar fate. Perhaps only Canopy Growth (NYSE:CGC) still holds its own, at least with the public opinion. But it, too, is miles away from its all-time highs.
This reminds me of the extreme hoopla over GoPro (NASDAQ:GPRO) when it was near $100. Back then they dubbed it the “YouTube killer” and that marked the top for that stock as sits now down 98% from the high.
Yes, I know that the cannabis thesis is different than a camera company, but my point is that perceptions matter more than reality often times. The pot stocks fell victim to extreme exuberance. Had they rallied at a more moderate pace, Wall Street wouldn’t not have spit them out so violently. This was the case where over-zealous stock success came faster than the maturing of the story behind it.
Long term, cannabis is still a viable bullish thesis. We will likely see products on the supermarket shelves like edibles, sodas and creams. We will also be treated for certain ailments with cannabis-infused medicines at the doctors’ offices, not just the holistic centers.
But until we have more concrete evidence of this, the story of retail demand remains a pie in the sky.
Now, one thing the pot industry has going for it is its fans. They are a devoted bunch and they love their stocks. This makes them great trading vehicles short-term. Else the point is to hold TLRY stock — or any of its competitors — for the very long term. They do trade in unison to a degree. What happens to one almost certainly happens to another on any given day.
The Path to $11 Per Share Starts with Support
As they say, the best defense is a strong offense. In this case TLRY stock needs a strong defense to build an offense. If the bulls can hold $7 per share they can trigger a rally soon enough.
If it trades above $9.75, it would invite momentum buyers and they would want to take it to $11 and beyond. There are resistances there, but if the shares plow through, then Tilray could overshoot to $12.50 maybe even $15 and it only needs a nudge. However, shorter term this dip on earnings creates a mini hole from which they need to dig out. So the first order of business is to rise above $8 where this first challenge lies. Nothing happens without conviction so the bulls have a tough task at hand.
Help May Be Coming Its Way
The extra twist will come from legislation.
For a while, this was the focus among investors but this headline has died out of the mainstream coverage. Tilray stands to benefit greatly if somehow this debate resurfaces. Maybe around the elections, and depending on who wins the battle for the White House later this year, this topic could rise from the dead. If a major geographical area legalizes pot, this could also serve as a catalyst. So if you are a fan, hit the street with your petitions. The CEO already said that sales of medical weed outside of Canada surpassed those inside. Maybe the expansion concept is indeed expanding under the radar.
Until then, they can’t change the fact that the Tilray earnings were less than inspiring. Management needs to offer investors the wow factor again. Sales grew 125% year over year which is impressive but they need to flank it with other good bits and pieces for a better impact. The good thing is that now at least the price to sales is a reasonable 4x — not 200 times like it was during the 2018 pot stock mania love fest.
I know that some of my comments may rub the super fans the wrong way but this is a reality of TLRY stock that they should face. The story needs help, and last night’s earnings report wasn’t it.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.