Tilray Stock Up 26% – Time to Buy TLRY Stock?

The price of Tilray stock went up almost 26% yesterday after the company reported a surprising Q4 quarterly profit amid fair value adjustments of its convertible debt.

This is the first quarterly report for Tilray after the company completed its merger with Aphria back in May this year and these positive quarterly results appear to be encouraging investors about the company’s future.

During the fourth quarter ended on 31 May, the company reported a 25% jump in its net revenues compared to a year ago at $142.2 million, primarily fueled by higher net cannabis revenues while partially dragged by lower distribution income.

Meanwhile, net income came in at $33.6 million for a notable improvement compared to an $84.3 million loss the company reported a year ago while earnings per share landed at $0.18. This unexpected swing to profitability was the key driver for yesterday’s uptick as Wall Street was expecting a $0.08 loss per share for the period.

Could Tilray shares continue to rise on the back of a potential improvement of its post-merger fundamentals? The following article takes a closer look at the stock’s latest price action and the firm’s financial information to possibly answer that question.

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Tilray Stock – Technical Analysis

Tilray shares have been on a downtrend since the February short-squeeze frenzy faded, moving from a 52-week high of $67 to a little as $12.7 a day before this latest earnings report for an 81% loss.

However, the stock was still 53% up for the year even after this sharp decline while it is now up almost 100% as a result of yesterday’s uptick.

Thus far, this increase in the share price is not triggering a bullish signal as the downtrend has not been reversed. For that to happen, the price must first climb above its most pronounced previous highs, which at this point can be located at the $23.3 level.

If that happens, chances are that the short-term outlook for the stock could turn bullish on the back of the strong positive momentum prompted by this latest report. It is important to note that yesterday’s volumes were almost 9 times higher than the 10-day average while the stock is also up 5% this morning at $16.8 per share.

A full-blown reversal of the downtrend could lead the stock to a first target of $37 for a 131.3% upside potential based on the technical setup. However, the fundamentals of the business must be analyzed first to see if that target is somehow possible based on the firm’s historical and forecasted financial performance.

Tilray Stock – Fundamental Analysis

Before its merger with Aphria, Tilray was reporting positive revenue growth with top-line results moving from $20.5 million back in 2017 to $210.5 million by the end of 2020 at a 118% CAGR. However, negative operating income and net losses were quite high, with bottom-line results expanding from minus $7.8 million to minus $271 million by the end of the same period.

Moving forward, estimates compiled by Koyfin show that market participants are expecting to see revenues growing at a slower pace, with an expected 16% jump in 2022 compared to this year’s forecasted figure of $840 million along with a 30% increase in 2023.

That said, nobody was expecting a profitable quarter for Tilray at least until next year and certainly not to the extent of the figure reported yesterday. However, it is important to note that this positive number was the result of extraordinary non-operating income resulting from debt-related fair value assessments and not to material changes in the business performance.

Therefore, it seems unlikely that Tilray will continue to report earnings in the future and this means that results may continue to land fairly close to the market’s forecasts.

Based on the company’s current market capitalization of $7.3 billion, Tilray’s business – now including Aphria’s numbers – is being valued at around 9 times its forecasted sales for next year while the company should continue to report net losses for the foreseeable future.

Meanwhile, post-merger long-term debt for Tilray currently stands at approximately $888 million, including its convertible debt on total assets of $6 billion that include $3.4 billion in intangibles and goodwill and almost $500 million in cash.

Even though the P/S ratio doesn’t seem too elevated based on Tilray’s growth prospects, particularly if one considers the possibility of an upcoming federal-level legalization of weed in the United States, it would be hard to determine if that valuation is close to the fair value of the company as it continues to lose money and produce negative free cash flows.

Therefore, even though the technical assessment of the stock points to an elevated price target if a reversal of the downtrend occurs, the odds of that scenario are difficult to determine. As a result, the price of Tilray stock should continue to be fairly volatile until the firm’s performance stabilizes to the extent that investors can see a clear path to profitability.

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