Is Tilray’s stock about to light up post earnings?

Tilray’s [TLRY] stock surged more than 13% last Monday after the firm reported a 20% jump in revenue for the second quarter. The solid numbers lit up a stock that has been something of a damp squib after a year of flagging growth and loss of share in the Canadian market.

Cannabis stocks have been struggling. Market movement is stubbornly tied to if and when a bill will be introduced to legalise marjiuna at a Federal level in the US. The continued delay of this is likely to be as much of a headwind for cannabis stocks in 2022 as it was in 2021.

Over the past 12 months, Tilray’s stock has fallen over 63% to close Friday 14 January at $6.86. That’s something of a fall from the $67 the stock touched in intraday trading in February last year. Although, to be fair, that was perhaps down to Reddit forums hyping the stock, with the stock subsequently crashing to start March at around $25.

Either way, Tilray’s stock experienced a steady and consistent comedown in 2021, which had continued into the new year But are second quarter earnings a sign of a turnaround?

Why should investors care about Tilray’s stock

In the second quarter, Tillray managed to reduce ‘general and administrative expense’ by 32%. That’s a good thing as costs have weighed on profitability. This time out Tilray managed to earn $6m - a major step up from the $89m loss seen in the same period last year. Revenue came in at $155.2m, up 20% year-on-year but missing Wall Street expectations.

Expansion into alcohol and hemp manufacturing benefitted Tilray in the second quarter. Revenue from Tillray-owned craft beer brewer SweetWater came in at $13.7m. In December, it was announced that Tilray will pick up Green Flash Brewing and Alpine Beer Company. Manitoba Harvest, which supplies hemp-based foods, oils, and supplements, delivered revenue of $13.8m.

One area of concern is that Tilray has lost market share in Canada, partly due to competitors cutting prices. Following the earnings result, Irwin Simon told BNN Bloomberg:

“The market came down in price over 22% where we dropped in price about 1.7%. To rebuild market share for us in Canada, there’s a couple of things:  innovation is a key, getting consumers to know our brands, working with the bartenders at retail … the other big thing is supply.”

Simon added “We’re focused on making back that [lost] share. We’re focused on not doing it just by price. You’ll never win just on price. Price is a short term fix.”

"The market came down in price over 22% where we dropped in price about 1.7%. To rebuild market share for us in Canada, there’s a couple of things:  innovation is a key, getting consumers to know our brands, working with the bartenders at retail … the other big thing is supply" - Tilray CEO Irwin Simon

What analysts are saying about Tilray’s stock

Analysts at Haywood Securities noted that Tilray’s has been losing market share among adults in Canada. The analysts said that the company will likely either lower prices or “use the strength of its balance sheet for M&A to increase Canadian market share.”

However, Tilray’s product mix could help its chances of growth. Haywood has a $8 price target on Tilray, down from a previous $12.5.

“Tilray does have a diversified revenue mix that will present an opportunity for growth as the Company continues to work towards optimizing its Canadian cannabis segment,” noted analysts at Haywood Securities.

Following the results, Alliance Global Partners’ Aaron Grey upped his target from $7 to $8, saying that for sustainable gains some consolidation would be needed in the highly fragmented industry. Over at Stiffel, analyst W. Andrew Carter said that Tilray’s sales missed his own ‘muted expectations’. Carter has a $6 price target on the stock to go with his Hold rating.

Slashing prices following the results was Cannacord’s Matt Bottomly, who cut his target from $12 to $9  while maintaining a Hold rating. The analyst cited sales that came in below forecasts, but noted progress on Tilray’s adjusted EBITDA. MKM Partners’ Bill Kirk also lowered his price target, going from $10 to $8.

Among the bulls is Cowen analyst Vivien Azer, with a $23 target - considering Tilray closed Friday at $6.86, that would be a substantial upside.