Tilray Inc. (TLRY) is a multinational company that offers research, cultivation, and distribution of cannabis-based products and offerings, including but not limited to hemp-based foods, cannabis products, and alcoholic beverages.
I am bullish on Tilray as it has strong growth potential and large upside to its consensus price target from Wall Street analysts. That said, it is a speculative investment given that regulatory risk is fairly high for cannabis stocks, and it is not yet profitable on a GAAP basis.
The platform offers support to more than 20 brands in different corners of the world. Currently, the company operates from five different locations, including the United States, Latin America, Australia, Europe, and Canada. A lifestyle and health company, Tilray offers solutions, products, and services to consumers and patients to meet their requirements and needs. (See Analysts’ Top Stocks on TipRanks)
Strengths
Tilray was among the first medical cannabis producers to have first-hand dealings with pharmacies, patients, researchers, and hospitals around the globe. With over 2000 employees, the company has become a pioneer in this industry, with the pre-tax revenue expected to reach $81 million.
As of April 30, 2021, the cannabis CPG company had a combined market value of $8.2 billion after its merger with Aphria Inc. Its global footprint is among the largest compared to several other multinational companies with a wide range of consumer-packaged goods and access to approximately 17,000 North American stores.
The new merger is expected to bring a plethora of new brand portfolios to add to its already extensive list.
Recent Results
With 47 countries legalizing cannabis-based consumer-packaged goods and the global cannabis industry being at an all-time high, TLRY saw an increase in revenue in its Q1 FY 2022 results.
The company’s revenue reached $168 million compared to the revenue generated in the same period last year, which was at $117 million. Its revenues are dominated by distribution, followed by cannabic, beverage alcohol, and wellness, respectively.
TLRY’s gross profit rose 46% year-over-year to $51 million compared to $35 million last year. Adjusted cannabis gross margins for the quarter were 43%, and adjusted EBITDA was $12.7 million, 58% growth compared to the prior-year quarter
Valuation Metrics
TLRY stock is difficult to value right now given that it does not have a lengthy trading history and it operates in an immature industry. It currently trades at a 53x forward enterprise-value-to-EBITDA ratio, which seems quite high, though the company is expected to grow EBITDA by 65.6% in Fiscal 2022 and by 71.3% in Fiscal 2023.
Wall Street’s Take
Turning to Wall Street, TLRY earns a Hold consensus rating based on two Buys, eight Holds, and one Sell rating in the past three months. Additionally, the average Tilray price target of $13.10 puts the upside potential at 83%.
Summary and Conclusion
Tilray is a very interesting investment opportunity, as it is a leader in a rapidly growing young industry with global appeal. While analysts are neutral on the stock and the EV/EBITDA ratio seems quite high, the growth potential is enormous, and the average price target implies that the stock could see massive upside over the next year.
That said, the company is not yet profitable on a GAAP basis, and regulatory risk is fairly high, so investors should keep in mind that this is a speculative stock when deciding whether or not to open a position.
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Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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