Last month I wrote that Tilray (NASDAQ:TLRY) is poised to move significantly higher. The company posted stellar fiscal fourth-quarter results, moving into positive net income and positive free cash flow (FCF). However, TLRY stock has just been treading water. I still believe it could move substantially higher, especially now that analysts have been raising their estimates for 2022 revenue growth.
Actually, so far year-to-date (YTD), TLRY stock has done fairly well. It closed last year at $8.26 per share on Dec. 31, and as of midday Sept. 29, the stock was at $11.23. That represents a YTD growth rate of 36%.
But the market may soon realize that 2022 will bring in much higher sales now that its Aphria merger has closed. My estimate is that TLRY stock could rise up to 75% more to $19.65. This is slightly higher than my previous estimate of $19.18.
Why TLRY Stock Could Rise
The company’s positive revenue and FCF last quarter are likely to result in higher levels of both in this coming quarter. On Oct. 7, the company will issue results for fiscal Q1, which ended Aug. 31. Expect to see TLRY stock move higher as a result.
One reason is that analysts have been raising their revenue estimates. For example, as of Sept. 29, 18 analysts surveyed at Yahoo! Finance (using Refinitiv data) had an average revenue forecast of $797.9 million for the year ending May 2022.
But if you look at Seeking Alpha estimates from the same date, their survey of 18 analysts showed revenue of $805.5 million for the year ending May 2022. These estimates are 55.6% to 57% higher than last year’s $513 million in sales.
I suspect that is already in the stock price. Looking at the year ending May 2023, analysts now see $985.1 million in sales. This represents a potential gain of 22.9% over the average of the May 2022 fiscal year sales.
Moreover, it’s also a potential gain of 92% over the May 2021 year sales. In other words, in the next two years, the company may almost double its sales.
What Tilray Stock Could Be Worth
This will have a hugely positive effect on the company’s now-positive FCF. In my last article, I projected that in the next two years, Tilray could make a 15% FCF margin.
This means that by the year ending May 2023, its FCF could hit $147.75 million. This is seen by multiplying the $985 million sales forecast for May 2023 by 15%. This is important, since we can use the FCF estimate for May 2o23 to value TLRY stock.
For example, if we use a 1.5% FCF yield metric, as in the last article I wrote, we can value Tilray stock. This is done by dividing $147.75 million by 1.5%. The result is a market value of $9.85 billion.
This is 75% higher than the company’s existing $5.63 billion market value, according to Seeking Alpha. Actually, Yahoo! Finance has a lower market cap of $5.15 billion, but I decided to use the Seeking Alpha one just to be conservative.
As a result, we can estimate that TLRY stock is worth 75% more than its price of $11.23 per share on Sept. 29. That puts it on a price target of $19.65 per share.
Keep in mind I’m making some major assumptions here. The biggest one is that Tilray will make 15% FCF margins. However, I believe that is more likely to occur than not.
What to Do With TLRY Stock
Other analysts believe TLRY stock is likely to rise. For example, Yahoo! Finance reports that 17 analysts have an average price target of $15.89 per share. That represents a potential upside of 41.5% from yesterday’s price.
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 $16.77. That is an upside of 49.3% from its Sept. 29 price.
Given that Tilray could end up benefitting more if cannabis is eventually legalized in the US, as one Seeking Alpha contributor argues, TLRY stock has additional upside.
But for most growth investors, the stock has good potential, especially if its profitability continues to grow. That is why the results on Oct. 7 will be so important. At that time, we can review my target price of $19.65 and adjust it accordingly.
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.
