Tilray Stock Price Forecast October 2021 – Time to Buy TLRY Stock?

Tilray (TLRY) stock has whipsawed this year. The stock rose over 2% in yesterday’s price action after it released its fiscal first-quarter 2022 earnings. However, it is trading near the post-merger lows.

What’s the forecast for TLRY stock and should you buy the dip in this cannabis stock?

Tilray stock recent developments

Tilray released its fiscal first-quarter 2022 earnings yesterday. The cannabis giant reported net revenues of $168 million in the quarter, a year-over-year rise of 43%. During the period, its net cannabis revenues increased 38% to $70 million while net beverage revenues were $15 million in the quarter following the SweetWater acquisition. It also reaped $15 million in revenues from the Manitoba Harvest acquisition.

Notably, there has been a wave of consolidation in the cannabis industry. Curaleaf has acquired EMMAC Life Sciences. Sundial Growers has also been on an acquisition spree and yesterday only it acquired Alcanna for $346 million in an all-stock transaction. Sundial Growers has raised a lot of cash this year amid the Reddit mania and has been looking out for investment opportunities. Tilray also recently announced an investment into US cannabis dispensary MedMen and plans to increase the investment further.

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TLRY earnings

TLRY reported an adjusted EBITDA of $12.7 million in the quarter, which was its tenth consecutive quarter of positive adjusted EBITDA. The metric would have been $17 million without accounting for Aphria. Notably, most of the cannabis companies are posting negative EBITDA and the consolidation in the industry is a welcome move as it would help in addressing the pricing pressure amid the oversupply situation.

Tilray had touted millions of dollars of synergies while merging with Aphria. The company said that it has achieved actual cash savings of $20 million to date and is at a run rate of $50 million. It is on track to achieve $80 million in synergies.

Tilray stock long term forecast

Tilray’s CEO Irwin 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.

Why TLRY is a good stock to buy for long term

The company expects Europe to contribute $1 billion to its revenues and is working to increase its market share in Canada from 16% to 30% by the fiscal year 2024. Simon highlighted four factors that differentiate the company from its peers. The first, according to Simon is “broad geographic footprint and operational scale.” Notably, after the merger with Aphria, Tilray’s business is spread across the globe and it has both medical and adult-use cannabis. Apart from its market leader position in Canada, it is also the leader in the European cannabis market.

Simon listed the market leadership position in Canada as its second competitive advantage while he talked about “tremendous international growth opportunities based on two strong medical cannabis brands” as the third competitive advantage. Simon listed its CBD platform and US infrastructure as the fourth key differentiator.

TLRY stock forecast

Wall Street analysts have set a median target price of $13.20 on TLRY stock which is a premium of almost 20% from these levels. The street low target price of $10 is a 9.3% discount while the street high target price of $27 is a 146% premium. Of the 20 analysts polled by CNN Business, only five rate Tilray as a buy while 14 have a hold rating. One analyst has a sell rating on the stock.

After Tilray’s earnings release, Stifel Nicholaus lowered its target price from $11.5 to $10. Over the last couple of months, several brokerages including Roth Capital, Cantor Fitzgerald, Piper Sandler, and Alliance Global Partners had lowered the stock’s target price.

Why Tilray looks like a good stock to buy?

Tilray now trades at about 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 six months. 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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