- Tilray (TLRY) stock long term investment thesis is viable.
- Shorter term TLRY stock opportunities require skill.
- Midterm investors are most at risk from extreme volatility.
It is important for investors to know the appropriate investment time frame that suits their situation. Not everyone can act in the same manner especially with Tilray (NASDAQ:TLRY) stock. Right out of the gate the price action in it and its industry was ferociously violent. In 2018, Wall Street went overboard with their expectations of the cannabis industry. Pot stocks went much higher than they should have. The good news is that since then, expectations fell back to earth. And more importantly the companies financial metrics normalized a bit, especially from the price-to-sales (P/S) perspective.
Long before GameStop (NYSE:GME) did it, Tilray was the original super-spiker. Back in 2018, TLRY rallied 1,200% out of nowhere. and it was a short squeeze to remember. Most recently it showed flashes of brilliance by rising 90% off the March lows and headlines from the White House. Cannabis stocks are still struggling with legal issues. The United States has dragged its feet unshackling the industry from their current constraints. Even though certain states have opened many doors for them, Tilray and company still have to contend with special circumstances.
| TLRY | Tilray | $5.87 |
The Cannabis Opportunity Is Real
The original excitement over pot stocks was to exuberant but for good reason. The application potential was an enormous field in the making. It wasn’t so much the recreation sales that intrigued investors. It’s the dozens of other major fields it could enter. The medical field was most obvious. But then there were the edibles, drinkables and topical applications. Cosmetics is a huge area of income that is also ripe for cannabis use cases. The sky was the limit for pot, and so were the bids for TLRY stock.
But then it all came crashing down almost to zero. At the depth of the pandemic for example TLRY stock was under $3 per share. From that, came a $2,400% rally that ended 14 months ago. As they say easy come easy go, because the stock is now 90% below the 2021 high water mark. At $6 per share, Tilray stock is a far cry from its all-time high of $300. Investors who expect it to go back there or not being realistic with their expectations. The upside potential for the long term is still a viable bullish thesis. Shorter term it’s a tactical environments that favors traders more than investors.
Throughout the stock price trepidation, management improved it’s business operation. The price-to-sales now reflects more realistic expectations from the shareholders. Total revenues grew 10 times since 2018, albeit through acquisition. But that also shows the business acumen of the team. They have given the company a position of strength in the field through strategy. Nevertheless the net income loss is growing and that could be a problem in a rising rate environment. The ability to borrow shrinks, therefore the window of opportunity is getting narrower.
Investors who have a very long-term horizon have a viable thesis on their hands. There’s no reason why Tilray won’t make it as its environment normalizes. With short-term, investing in TLRY stock requires some trading skills as well. After the start of the pandemic, the stock price ranges have been wider and more violent. Therefore, not paying attention to the charts can cause tremendous grief on the shorter time frames.
For example those who bought it on March 30 could have had one third more stocks for the same price. Extending that comment to last November, that discrepancy is almost 60%. Clearly the entry point does matter, especially if the investors have midterm time horizons. Those who bought stock in February of 2021 have lost almost all their investment. This wasn’t a one-of scenario since the same happened from the $300 super-spike. Those investors are down more than 90% of their money, and will never recover their cash.
TLRY Stock Road to Recovery
But my goal today is not about calling out what went wrong with Tilray. I’d rather lay out a realistic outlook for the year. The stock market in general is suffering a bit and trying to find footing this week. The current sentiment on Wall Street is bearish, but the correction hasn’t even started. Just a couple of weeks ago the S&P 500 was almost at all-time highs again. So, if the bears really wanted to press the issue, they can inflict a lot more pain.
This is an important nuance because all other stocks have to trade within those confines. In the short term, TLRY stock needs to hold $5 per share so it needs stable markets. Otherwise it opens the door for retesting lower lows. Alternatively if the bulls can beat $9, they can invite more buyers and extend the gains another 25% from there. It won’t be easy, because of the resistance just above $10, then again at $14. The important point is for the descending trend to reverse. The first step of that is to hold the March lows. On a last note, the U.S. regulators can still be a major wildcard.
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.
