After a revenue beat Tilray Inc (NASDAQ:TLRY) saw its stock jump 5% for the day. However, that optimism has faded rather quickly, and Tilray stock has not been able to capitalize on that momentum.
Unequivocally, it has been a wild ride for Tilray investors. Last fall, against a very frothy overall market and marijuana stocks going more mainstream, the stock price exceeded the $200 mark before getting cut down by three quarters, trading at less than $50 per share as of this writing.
Still though, I remain cautious on Tilray stock. The company hit a major milestone by landing a partnership with Novartis AG (NYSE:NVS), the Swiss pharmaceutical company, late last year. That’s certainly been a positive catalyst, but after all the hype, investors need to see meaningful progress toward a more profitable future.
Tilray Stock Has a Mixed First Quarter
A lot of the focus immediately after earnings was around revenues. TLRY delivered a massive 195 increase in year-over-year revenues. The legalization of marijuana use in Canada for adults last year in addition to hemp food sales from Tilray’s acquisition of Manitoba Harvest were big drivers.
Gross margins also saw a slight increase, but despite these positive signs, net losses for the quarter increased dramatically. Last quarter $5 million to $30 million most recently. For a growth company, it’s not necessarily unexpected. Expansion costs money as companies need to lay the foundation for future endeavors, but the point is that it’s naïve to look only at the revenue beat and think TLRY stock is headed for the sky.
Total kilogram equivalents sold did double to 3,012 kilograms, but compare that to fellow competitor Canopy Growth (NYSE:CGC) that sold 10,102 kilogram equivalents in the most recent quarter and has a higher pricing structure.
TLRY is still doesn’t have pricing figured out seeing as average net selling price per gram decreased over the prior year period. As the space gets more and more competitive, TLRY needs to optimize this quickly as increasing supply toward medical and consumer purposes will put pressure on prices. The trend is not going in the right direction.
Tilray Stock Is Overvalued
Ultimately, TLRY stock looks lofty in terms of valuation. This, of course, does not mean the stock cannot get more expensive from here, but it’s not a screaming buy despite some decent first quarter numbers.
Tilray’s consensus forward P/E is the kind of number that makes you triple check because you don’t think it can be right: 1,111x. Compare that 357x for CGC. It’s a relative game with P/E ratios, so even though 357x may also sound extraordinarily rich, it goes to show that 1,111x is completely irrational.
There is just so many ways for that multiple to get rerated downward, again and again.
Final Note on Tilray Stock
The first quarter earnings was a bit of a mixed bag. The market gave credit where it was due but no more than that, recognizing the weak points in the financials.
Tilray has made progress on expansion via M&A, which may bolster future earnings, but only time will tell. There is a lot of success already built into the current valuation, meaning that TLRY can’t miss a beat.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.
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