It’s fine to be bullish on cannabis stocks, but Tilray (NASDAQ:TLRY) (TSE:TLRY) stock is destined to go up in smoke and destroy investors’ wealth. It pains me to say this, but I am bearish on TLRY stock and expect it to continue heading below $1, after which the stock could end up being delisted.
Tilray is a giant Canadian cannabis producer, which got even bigger when the company merged with Aphria in May of 2021. Now, it’s evident that Tilray only wants to get bigger as the company just agreed to acquire one of its rivals in the cannabis market.
However, whether this will actually be a value-added acquisition is debatable. Besides, a glance at Tilray’s freshly released financial results indicates that the company probably shouldn’t be on a buying spree in 2023.
Tilray’s Hexo Buyout Isn’t Actually Good News
Tilray’s management spent ample time boasting about the upcoming Hexo acquisition in the press release. Yet, there were no numerical estimates in the press release indicating how much revenue Hexo would provide to Tilray. Investors have to make their own guesses, apparently. It could take a long time for Tilray to break even on its investment in Hexo, which will cost TLRY $56 million.
Whether Tilray can even afford to buy other companies is questionable, but we’ll get to the company’s financial problems in a moment. For now, let’s consider whether Hexo is actually worth $56 million. Compared to analysts’ consensus estimates, Tilray’s track record of quarterly EPS results is poor, but Hexo’s is even worse.
Hexo has missed EPS estimates, quarter after quarter, for the past two years. Plus, these aren’t near-misses; they’re usually major disappointments. It’s also worth noting that, by the most recent count, Hexo had C$191.62 million worth of total debt on its balance sheet.
So, let’s recap. Hexo is debt-ridden and consistently unprofitable, and the company doesn’t live up to Wall Street’s earnings expectations. Sure, Tilray’s management can talk about how they’re “incredibly excited” about their “combined prospects moving forward with” Hexo. Yet, it’s hard to see exactly why they’d expect to accrue real value on Tilray’s multimillion-dollar investment.
Tilray Shouldn’t Consider a Major Acquisition Now
Even beyond the question of whether the Hexo purchase is actually a value-added investment, investors should wonder whether Tilray ought to be buying other companies at all. Indeed, a quick glance at Tilray’s newly released data for Fiscal 2023’s third quarter indicates that the company shouldn’t be going on a buying spree right now.
Here’s what really shocked me. Tilray’s cash and cash equivalents declined from $415.91 million as of May 31, 2022, to $165 million as of February 28, 2023. Tilray needs to shore up its capital position right now rather than agree to spend more than $50 million on an acquisition this year.
Additionally, here’s a result that stunned me. While Tilray’s 4% year-over-year revenue decline is disappointing, the real kicker is the company’s horrendous bottom-line stats. Analysts had expected Tilray to report a per-share loss of $0.05 in Q3 FY2023, but in actuality, the company lost $1.90 per share. No, that’s not a typo – it’s really that bad. This outcome also represents a huge decline in comparison to the net income of $0.09 per share that Tilray recorded in the year-earlier quarter.
It’s even more jaw-dropping when we put it in dollar terms. Somehow, Tilray managed to devolve from a net profit of $52.475 million in the year-earlier period to a net loss of $1.196 billion in the most recently reported quarter. Again, ask yourself: Is Tilray actually well-positioned to buy out another company? I’d say the answer is no, as Tilray should fix its own problems before considering taking on another cannabis producer’s issues.
Is TLRY Stock a Buy, According to Analysts?
On Wall Street, TLRY doesn’t have a lot of analyst coverage, but it is rated as a Hold, according to one analyst. That same analyst, Andrew Carter of Stifel Nicolaus, assigned Tilray stock a price target of $2.80, implying 2.2% upside potential.
Conclusion: Should You Consider Tilray Stock?
Carter might envision Tilray stock reaching $2.80, but I tend to disagree with that price target. It actually wouldn’t surprise me, given Tilray’s poor financials and ill-considered Hexo purchase, if the company’s stock falls below $1 this year.
That would be a real shame, as I’m generally bullish on the Canadian cannabis industry. However, it’s important to choose your cannabis investments carefully, and Tilray just doesn’t look like a winner this year. Therefore, I definitely don’t think that anyone should consider TLRY stock.
