Tilray Stock Price Up 10% Today – Time to Buy TLRY Stock?

Tilray stock, which gained over 6.5% yesterday, was up almost 10% in US premarket price action today. The stock has now bridged its 2022 losses to only about 20%, and the drawdown looks set to narrow even further today.

However, Tilray stock trades at a fraction of its 2021 highs, just like fellow cannabis stocks. What’s the forecast for TLRY stock and is it a good buy in March 2022?

Tilray stock recent development

While Tilray stock is up sharply in premarkets today, there hasn’t been any official news from a company or even an analyst upgrade. The stock is however going up for a couple of reasons. Firstly, there has been a rebound in beaten-down stocks, especially those which were once popular meme stocks. Also, TLRY stock has been trending on social media channels like Reddit group WallStreetBets, and Stocktwits. The rise in Tilray stocks could also be due to bottom fishing as it fell to its all-time lows earlier this month.

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Tilray Aphria acquisition

Tilray has become a cannabis powerhouse after its merger with Aphria. Notably, there has been a wave of consolidation in the cannabis industry. Last year, Curaleaf acquired EMMAC Life Sciences. Sundial Growers has also been on an acquisition spree. Sundial Growers has raised a lot of cash last year amid the Reddit mania and has been looking out for investment opportunities. The company, which was cash-starved only a couple of years back, also announced a stock buyback.

Last year, Tilray announced an investment into US cannabis dispensary MedMen and plans to increase the investment further. This would provide TLRY would a foothold in the US cannabis market.

TLRY acquired Hexo’s debt

Earlier this month, TLRY announced a partnership with Hexo and said that it would acquire up to US$211 million of Hexo’s senior secured convertible notes. The notes have been amended to give Tilray the right to convert the investment into equity at Canadian dollars 0.90 per share.

As part of the agreement, Tilray would get 10% interest. While interest would be paid in cash in the first year, in the coming years, only half would be paid in cash while the remaining would be added to the principal.

Irwin Simon on the deal

Commenting on the deal, TLRY’s CEO Irwin Simon said “We believe this proposed Transaction would be a win-win for Tilray Brands and HEXO as it would launch a strategic partnership between two leading Canadian cannabis producers with complementary brand portfolios. For us, it provides a path for meaningful future equity ownership of HEXO, and enables us to participate in HEXO’s share price appreciation as it continues to execute on its growth initiatives.”

He added, “We also expect to realize further commercial and production efficiency savings of up to C$50 million within two years, which would be shared equally and would allow us to continue being the leading, low-cost Canadian producer.”

Tilray reported a profit in the fiscal second quarter

Tilray reported its fiscal second-quarter 2022 earnings in January. The company’s revenues increased 20% to $155 million over the period and were higher than what analysts were expecting. It posted an adjusted EBITDA of $13.8 million, which was its 11^th consecutive quarter of positive adjusted EBITDA. The company also posted a surprise profit in the quarter, which led to a spike in its stock price after the earnings release.

Commenting on the earnings, Simon said, “Looking at performance highlights across key markets, we maintained our #1 cannabis market share position in Canada – despite market saturation and related competitive challenges — on the strength of our brands and adept pricing and marketing adjustments.”

TLRY also has a strong position in the European medical cannabis market and is the market leader in Germany, which is the continent’s biggest and most profitable cannabis market.

Tilray stock forecast

Wall Street analysts have set a median target price of $8 on TLRY stock which is a premium of almost 41% from these levels. The street low target price of $5.5 is a 3% discount while the street high target price of $23 is a 305% premium. Of the 21 analysts polled by CNN Business, only five rate Tilray as a buy while 14 have a hold rating. Two analysts have a sell rating on the stock.

Over the last six months, several analysts have lowered TLRY’s target price. However, even now, the consensus target price is a massive premium over current stock prices.

TLRY stock long term forecast

Tilray’s long-term forecast looks bullish considering the expected federal legalization of cannabis in the US. During the fiscal first-quarter earnings call, Simon highlighted two business priorities for the company. According to him, “The first is maximizing near-term profitability through leadership in both higher-margin international medical markets and in Canada, complemented by incremental growth at SweetWater and Manitoba Harvest in the U.S.”

The second, according to Simon is to “fully realize the promise and potential of Tilray by capitalizing on the nearly $200 billion global cannabis market opportunity.” Notably, while Tilray’s current revenue run rate is below $1 billion, it is targeting a revenue of $4 billion by the fiscal year 2024. The increase would come from a mix of organic and inorganic growth.

Should you buy TLRY stock?

Tilray now trades at almost 4.7x its NTM (next-12 months) EV (enterprise value)-to-sales multiple. The valuations appear cheap. However, the entire cannabis space has been under pressure over the last year. Cannabis stocks had risen sharply after Biden’s election in 2020 in hopes that the new administration would legalize adult-use marijuana in the US. However, the bill has failed to move forward.

That said, legalization should eventually come as keeping marijuana criminalized at the federal level is not helping much as most states have anyways legalized adult-use marijuana. Also, keeping in mind that by not legalizing cannabis, the government only helps channel sales to the illegal market and it hasn’t been much of a deterrent on the sales.

Overall, cannabis stocks like Tilray might continue to trade weak in the short term unless the marijuana legalization bill makes some headway. However, if you can be patient in the current environment, it would pay off when cannabis is eventually legalized in the US.

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