Tilray (NASDAQ:TLRY) has been one of the most disappointing cannabis companies . TLRY stock initially shot up to $300 following its initial public offering (IPO). Since then, however, the stock has lost roughly 97% of its value.
The company has experienced a comedy of errors. The Canadian retail cannabis market took far longer to develop than expected. Tilray was plagued with excess inventory, and it made questionable capital allocation decisions. The company’s financial results repeatedly came in below analysts’ average expectations. For years, Tilray stumbled from one disappointment to the next.
At this point, it would be understandable if investors say they never want to hear the name Tilray again, and it will take awhile for the company to repair its battered reputation. If you look at the company with fresh eyes, however, TLRY stock — dare I say it — is starting to look downright interesting. It all started with the company’s latest earnings report.
Tilray’s Q2 Results Featured Weak Revenues and Improving Margins
On Monday, Tilray announced its Q2 results. Note that Tilray uses a fiscal year, and that its Q2 ended in November 2021. For the quarter, Tilray earned a profit of $6 million or 1 cent per share. To many investors, 1 cent per share might not sound too impressive. However, marijuana companies, including Tilray, have reported massive losses in recent years. As a result, generating a small, technical profit is a major achievement for the company.
Furthermore, analysts had been, on average, expecting Tilray to lose 8 cents per share, so the company’s earnings per share of 1 cent was well above the mean outlook. Interestingly, Tilray actually fell short of analysts’ average revenue estimate.
Despite its sales miss, Tilray beat the mean outlook on the bottom line because it is strongly improving its profit margins. In its key cannabis segment, Tilray’s gross margin was 43%, which is quite attractive compared to its peers.
Meanwhile, the company has achieved $70 million of cost savings already from its recent merger with Aphria. The cannabis maker will surpass its original target of $80 million of savings from the merger by the end of May.
Tilray now anticipates generating an additional $20 million of cost savings beyond what it had originally forecast in the wake of the acquisition. Normally, companies struggle to save as much money as they originally anticipated from mergers and acquisitions. But Tilray’s deal appears to be going better than originally planned.
Tilray Is Large and Has Interesting Growth Avenues
TLRY stock is a strong name in the cannabis space because it gives investors exposure to multiple parts of the sector. Tilray remains the largest wholesale cannabis producer in Canada. Initially, the Canadian market was too fragmented and competitive for any company to make much money. Now, however, weaker producers are dropping out of the arena. At the same time, Tilray has gained real advantages from its merger with Aphria and now is large enough to stand out from the field.
Canadian recreational marijuana is far from Tilray’s only area of focus, though. For example, Tilray has the top market position in Germany with an estimated market share of 20%. Successful ventures in foreign markets help insulate Tilray from volatility in Canada.
Perhaps most interesting of all, Tilray is moving heavily into beer and CBD beverages. Tilray has acquired various brewers and craft operations such as SweetWater, Breckenridge Distillery, and Alpine Beer. The deals give Tilray some immediate cash flows, while also allowing it to work on developing CBD-infused beer.
Tilray is in a strong position since it has such a large business after merging with Aphria. Consequently, it has lower costs than its competitors, causing some of its rivals to be forced out of business. Meanwhile, its extensive footprint gives it the ability to experiment with new product offerings and branding opportunities.
The Verdict on TLRY Stock
Cannabis has been a dreadful sector in recent years, and Tilray has been among the worst stocks in the space. Investors who have been bullish on Tilray prematurely have paid a heavy price.
It must, however, be said that TLRY stock is looking very attractive now. Previously, buying Tilray stock has not worked out well. But maybe this time the shares will finally reward investors. In any case, the firm’s small profit was a major milestone.
It feels risky to buy Tilray at this point. But, often, the best time to purchase stocks is when everyone else has given up on them and their sectors. Tilray has become profitable, and yet the market has barely noticed. This could finally be the moment that the game changes and Tilray enters a new era of prosperity.
There’s still plenty that could go wrong for the firm. However, it looks like its merger with Aphria will pan out and that Tilray can be the leader of the Canadian marijuana market going forward.
On the date of publication, Ian Bezek 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.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.
