Canadian marijuana giant Tilray (NASDAQ:TLRY) has had quite an eventful year so far. After completing its merger with rival cannabis operator Aphria, it became the largest cannabis company based on pro-forma revenues. More recently, it laid out its overly optimistic $4 billion revenue plan hoping to pull it off by 2024. However, given the state of the market and its past record, such a lofty goal is a tall order for TLRY stock.
To be sure, TLRY stock has performed well since the beginning of the year. It has gained over 45% in value, trading at as high as $67 during the height of the February meme stock mania.
As we approach the end of the third quarter, the stock has pulled back considerably of late and has shed more than 15% of its value this month. Despite the pullback though, it trades at over nine times forward sales including beverages. Hence, its attractiveness is limited at this point.
Could Multi-Billions Plan Stoke TLRY Stock?
CEO Irwin Simon recently wrote a letter to Tilray’s shareholders, to issue additional shares to execute the management’s growth strategy. The proposal was to increase the authorized share capital by 250 million shares from 743 million shares currently. Tilray’s stockholders have approved the proposal in a special meeting conducted on Sept. 10.
Tilray’s management feels that for the company to achieve its $4 billion revenue target by fiscal 2024 it needs to focus on three key areas:
- It needs to expands its Canadian retail share from 16% to 30%.
- It has to generate $1 billion from medical use cannabis sales in the European market.
- Tilray has to make substantial inroads into the U.S. market through deals similar to MedMen Enterprises (OTCMKTS:MMNFF).
The main reason for shareholders to increase Tilray’s share count is the sizeable difference between analyst revenue estimates and management’s target. Moreover, it is already in fiscal 2022, which means it has roughly two years to achieve these targets.
Tough Outlook Ahead
To meet its lofty objectives, Tilray has to grow its revenues from the current run rate of roughly $513 million to $4 billion in annual sales by 2024. It revenues have to grow at a staggering 680% in the next couple of years. Analysts already have revenue targets for fiscal 2022 at below $800 billion.
Moreover, there are concerns about how its deals will work out considering its patchy track record. It bought Manitoba Harvest in 2019 for $419 million CAD ($330.9 million) but now two years after closing the deal, Manitoba is performing well below expectations.
The Tilray/Aphria tie-up failed to impress in the recently released results as well. Hence, there is a fear that the company will simply pursue more bad deals in hopes of quickly ramping up revenues.
In the past few quarters, Tilray has taken a substantial hit in recreational marijuana sales. Hence, the talk about reaching the $4 billion mark in sales seems far-fetched at best. The company has been consistently missing out on sales targets in the past few quarters, which doesn’t bode well for its future.
Its stock boasts a market capitalization of over $5 billion and a large portion of sales are derived from its distribution business in Germany and its U.S. hemp foods business.
Bottomline on TLRY Stock
TLRY stock is down more than 61% in the last six months, while the Cambria Cannabis ETF (BATS:TOKE) has lost 35% in that time. At 12.3% of the pot-stock exchange-traded fund’s assets, it’s the biggest holding in the 27-stock marijuana shares portfolio.
Tilray has had perhaps its most momentous year in its history. After its Aphria merger, it now plans to ramp up its sales by an unfathomable percentage in only a couple of years time.
The company’s overly optimistic objectives are puzzling to say the least considering how it’s been struggling to meet internal targets. Hence, its best to avoid TLRY stock considering its weak fundamentals and challenging outlook.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.