Tilray (NASDAQ:TLRY) just reported excellent Q4 earnings for its fiscal year ending June 30. The Canadian cannabis company posted positive net income and also positive free cash flow (FCF) for the quarter. This provides a lot of hope for the shareholders and allows for a higher price target for TLRY stock.
On July 28, Tilray, which recently became the largest publicly held cannabis stock by closing its reverse merger with Aphria, reported its revenue rose 27% to $513 million.
Moreover, TLRY also made $33.6 million in net income and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $12.3 million. Most importantly, FCF turned positive and hit $3.3 million during the quarter.
Based on my estimates, TLRY stock is worth 34.6% more than its August 3 closing price of $14.25. This puts its target value at $19.18 per share. Let me explain how I came up with this.
What Tilray Stock Is Worth
Analysts estimates published by Yahoo! Finance show that average 2022 revenue forecasts are for $861.78 million. This is 53.44% over the $561.64 million revenue forecast for 2021. In other words, analysts believe the acquisition of Tilray by Aphria (keeping the Tilray name, even though the latter shareholders own 62% of the company) will be a success. Tilray also recently bought Sweetwater Brewing Company, which analysts likely believe will help its financials.
I assume that by the end of 2022 the company should be able to achieve a 15% FCF margin, especially with the merger synergies kicking in by then. This means that by 2022 Tilray will have made $129.3 million in FCF (15% x $861.78 million).
The market will love this. It is likely to set a value on TLRY stock with a 1.5% FCF yield. Here is what that means. If we divide $129.3 million by 1.5%, the target market cap will be $8.6178 billion.
That represents a potential upside of 34.63% over Tilray’s present market capitalization of $6.401 billion, according to Yahoo! Finance. Another way to say this is that TLRY stock is worth 34.63% more than its current price, or $19.18 per share.
Keep in mind there are a number of heroic assumptions here. The biggest one is assuming that Tilray will be able to make 15% FCF margins by then. In fact, it assumes that the company will still be FCF positive period. However, I believe that it is more likely to occur than not, despite the assumption.
What to Do With TLRY Stock
I’m not the only one who believes TLRY stock is likely to be worth more. For example, Yahoo! Finance reports that 15 analysts have an average price target of $18.82 per share. That represents a potential upside of 32% from today’s price of $14.25.
In addition, TipRanks reports that 11 analysts in their survey of those who’ve written on the stock in the last 3 months have an average target of $19.41. That is an upside of 36% from today and is very close to my estimate of $19.18 per share.
I am a little surprised by this since usually my estimates and target prices are not close to sell-side analysts. However, given the positive earnings and free cash flow the company produced this quarter, I think it is worth projecting out positive profits and FCF for 2022.
So look for TLRY stock to move up over one-third to $19.18 sometime in the next year. This assumes that the company stays on track to meet revenue and FCF targets for 2022.
On the date of publication, Mark R. Hake did not hold a position in any security in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
