Canadian pot producer Tilray (TLRY) is trying to find ways into the U.S. ahead of federal legalization. So far, it owns a company that makes hemp granola, a craft brewer and recently struck a deal to invest in struggling California-based cannabis retailer MedMen. So is TLRY stock a buy right now?
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Investors have raised questions about Tilray’s positioning in the U.S., should nation ever legalize THC products. MedMen this month reported fiscal fourth-quarter net sales of $42 million, up 55% from a year ago and 18.5% from the prior quarter. It booked a net loss of $46.2 million. Management said traffic increases at stores, and a sales gains in California, helped the results.
MedMen has been trying to turn itself around after overexpanding, lawsuits and accusations of executive excess. The company’s open-plan dispensaries, outfitted with tabletop displays and touchscreen tablets, initially grabbed the attention of the financial media. But its path to profitability has been bumpier than rival U.S. multistate operators.
Tilray’s investment deal with MedMen deal hands Tilray a chunk of MedMen’s debt once held by Gotham Green Partners, a longtime private-equity supporter of MedMen. That debt can eventually convert into stock. That conversion would give Tilray a minority stake in MedMen’s shares once pot is federally legal in the U.S.
Not everyone was sold by the deal.
“MedMen is a well-known cannabis brand, but is still contending with numerous issues borne from the legacy management team leaving this business as a broken asset,” Stifel analyst Andrew Carter said in a research note.
Tilray shareholders, at a recent special meeting approved by a slim margin, a proposal allowing it to issue more shares to help it with acquisitions. The vote, the company said, would help it deliver on a goal of $4 billion in sales by the end of fiscal 2024. Markets shrugged.
Meanwhile, some U.S. lawmakers are pushing measures to ease cannabis restrictions. But what full U.S. legalization might mean to Canada’s cannabis industry is not known.
Below, we take a closer look at TLRY stock.
TLRY Stock Fundamental Analysis
Tilray in July reported mixed fiscal fourth-quarter earnings. Shares jumped 24% anyway. But they have faded since.
Tilray’s merger with Aphria this year gives the combined company a market value that puts it closer to Canopy Growth (CGC), currently the largest Canadian pot stock. Tilray, post-merger, had a market cap of around $4.9 billion, according to Marketsmith. Canopy’s market value is around $5.4 billion.
Earnings growth is a staple of top stocks. But the EPS Rating of TLRY stock stands at 30, with 99 being the best possible. Other Canadian marijuana stocks also have not-great profit ratings, as they continue to lose money. The EPS Rating is a gauge of a company’s profit growth.
The Composite Rating of TLRY stock stands at 17, according to Marketsmith chart analysis. IBD research says investors should focus on stocks with Composite Ratings of 90 or higher.
Analysts expect Tilray to lose money, when measured by earnings per share, through this fiscal year, which began in June. They see it losing money in the fiscal year after that.
The company’s SMR Rating — or Sales + Margins + Return on Equity rating — is a not-great D. The rating tallies the past three quarters of sales growth, pretax and after-tax profit margins and return on equity.
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Tilray Stock Technical Analysis
TLRY stock began trading in July 2018 on the Nasdaq via an IPO. That IPO was the first on a big U.S. exchange from a pure-play cannabis company.
But the stock largely fell between then and September of last year, after industrywide concerns about profitability, sales growth and cash grew more severe.
This year, shares soared as much as 711%, hitting 67 on Feb. 10. The stock is off those levels, and is below its 50-day line. Shares are not in a buy zone, and no new base pattern has formed.
Is Tilray Stock A Buy?
Shares of Tilray are not in a base or in buy range. So TLRY stock is not a buy right now.
IBD advises investors to focus on stocks with stronger fundamentals that are moving into buy zones.
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