Cannabis grower and consumer packaged goods producer Tilray (TLRY) recently revealed its fourth-quarter earnings report. The news was sufficient to help the stock close 13.6% higher yesterday. That momentum is somewhat continuing today as well.
Tilray has been engaging in some rapid expansion over the last few months, and its plans seem to be paying off. I’m mildly bullish on Tilray because its last year has suggested potential growth ahead for the company.
Tilray has had a wild last 12 months in share prices, but that wild year is mostly seen in its first two months. Tilray stock led off mid-January 2021 around $13. In less than a month, the stock shot up around four times that number, making a serious play for $65.
That didn’t last long, however, as the company lost nearly half its value in the space of one day. A much more sedate pattern of ups and downs followed until mid-March.
That was where the company started a very slow slide downward that saw the company go from just over $30 on March 14 to right around $7.40 today. Historically, that’s about where Tilray traded for much of 2020.
The latest news lent Tilray new credibility in the market. Its latest quarterly reports revealed that net revenue was up around 20% against the preceding year, hitting $155 million.
Meanwhile, net income blasted up from a loss of $89 million in the previous year to a gain of close to $6 million. Contributing to those gains was a combination of factors, including brisk demand for cannabis products, growing alcohol revenue, and new revenue from wellness products via its Manitoba Harvest imprint.
Bargain Basement Pricing on a Likely Growing Firm
Looking at Tilray, especially at its last year in share prices, it would be easy to think that this is a company on its last legs and about to collapse. Dropping close to 90% over the course of a year would not be a good sign under normal circumstances. However, looking at Tilray suggests that this company may have another leg up in the future.
First, take a look at the overall operation now. Formerly, Tilray was mostly a marijuana concern. Now it’s added wellness products and alcohol production to its overall lineup. That’s a solid piece of diversification and the kind of thing that should help the company produce revenue going forward. Regardless of overall political conditions—or in some cases because of them—the demand for marijuana and liquor should remain fairly static.
Throw in growing numbers of friends in the regulatory sector, and marijuana is on a path to being the next tobacco. Also of note is that huge jump in revenue from a loss of $89 million to a gain of $6 million. Going from any loss to any gain is something of a big deal. Going from an eight-figure loss to a seven-figure profit, though, that’s a significant move in its own right.
Granted, there are some issues here. Tilray depends significantly on disposable income to survive. A major economic downturn would likely see Tilray’s chief products, pot and booze, come under fire. Cash-strapped customers would likely reconsider their priorities, and that would likely hurt Tilray’s sales.
Wall Street’s Take
Turning to Wall Street, Tilray has a Hold consensus rating. That’s based on two Buys, eight Holds, and two Sell rating assigned in the past three months. The average Tilray price target of $10.62 implies 43.9% upside potential.
Analyst price targets range from a low of $6.32 per share to a high of $23 per share.
Concluding Views
Is it possible that Tilray could be the next Altria (MO) one day? Sure it is. In fact, Tilray might even have an edge here; it took Altria decades to branch out into food and drink markets. Tilray is, comparatively speaking, well ahead of that mark.
While Tilray certainly has some issues to overcome, it’s still got a path to success that’s been well-trod by the likes of Altria before it. Prices are currently down around the lowest price targets. This suggests that Tilray has little room to go anywhere else but up. Attractive pricing and solid upward potential suggest a Buy in the making, which is why I’m mildly bullish here.
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