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Tilray Stock Has Gone up in Smoke But Odds Are Good

Before GameStop (NYSE:GME), there was Tilray (NASDAQ:TLRY) the king of super-spikes. TLRY stock soared 1,300% in 2018, only to never return to that top again. Now it sits barely $5 per share seemingly looking at no bottom yet. This is through no fault of its own, since its competitor Canopy Growth (NYSE:CGC) has suffered the same fate.

Closeup of mobile phone screen with logo lettering of cannabinoid company tilray cannabis, blurred marijuana and pipette background
Source: Ralf Liebhold / Shutterstock.com

Any bullish outlook from here relies more on hope than intellect. The company still has a business, but in the eyes of the U.S. it is still illegal.

After much jubilation with the election of President Joe Biden’s administration, they still haven’t legalized it. Not that it will be a magical headline, but at least it could unshackle them to make more corporate deals.

Judging by the trajectory of the stock, one would assume the business is dying. It’s quite the opposite because the P&L shows much improvement. They have managed to make strategic moves that resulted in impressive metrics. Coming into last year, management more than doubled revenues.

For the past 12 months, they suffered a set back, but it’s early to call it a trend. Currently TLRY stock carries a price-to-sales of 3.44. This is a humble level of expectation from the owner coming into it. It is safe to then say that “value” is not the driving force behind the selling.

TLRY Stock Needs New Friends

Tilray (TLRY) Stock Chart Showing Investor Devastation
Source: Charts by TradingView

Clearly there is potential there, yet Wall Street has turned the blind eye to it. There is no appetite for the cannabis stocks whatsoever. Moreover, the mood has soured of late in general largely due to the Federal Reserve.

This week they unofficially announced that they will start hiking rates in two months. A combative Fed usually means a slowing economy. Meanwhile, the reason they are doing it is because the reports are too good. Investors will have to resolve this conundrum.

Yesterday, the U.S. post a GDP of 8%. That’s hardly a tough situation and stocks should rejoice about it. Nevertheless, for now investors lack confidence as they mull over the tightening cycle. We’ve had accommodative conditions for so long that the patient has become addicted to the quantitative easing (QE).

To make matters worse, TLRY stock fell 6% yesterday likely due to an analyst downgrade. These rating are a crack-up, because they make absolutely no logical sense. While Jeffries reduced the price target 22%, they still have it at $17.

It doesn’t take a math wiz to figure out that would be a massive rally from here. In fact, according to SeekingAlpha not one of the 20 analysts have it as a ‘Buy’. More to it, their average price target is less than $10 per share.

The Bottom Line

At least in their note, the Jeffries analyst recognizes Tilray’s efforts and corresponding potential. We agree on that it is in a leadership position for the future. I get the impression that they did more with so much less than Canopy Growth.

A few years back, CGC received a $4.5 billion infusion of cash from Constellation Brands (NYSE:STZ). Here they are both almost the same size in market capitalization, sales and gross profits.

The price action has been horrific, so investors now must invoke a bit of hopium. They say “hope is not a strategy” but in this case they are desperate. Logic suggests that if the business is not dying, this close to zero must mean bottom soon.

Normally I would suggest using options to lower out of pocket expense. But at these levels, the TLRY stock price is pretty much a call option. This is one stock that requires its buyers to have patience. Maybe even send a few requests to the Apes on Reddit to send it to the moon one day.

On the date of publication, Nicolas Chahine 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.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2022/01/tilray-stock-has-gone-up-in-smoke-but-odds-are-good/.

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