Tilray’s [TLRY] share price had a helping hand from Cantor Fitzgerald analyst Pablo Zuanic last week, when the analyst upgraded his rating on the stock from neutral to overweight.
The upgrade was something of a mixed blessing, however, as Zuanic trimmed his price target to $22.50 from $30.25, which would see a 14.1% upside on 7 June’s closing price.
The analyst said that the $4bn Tilray-Aphria merger, which completed last month, would combine Tilray's international strength with Aphria’s leadership in the Canadian recreational cannabis market.
"We do not see another [licensed producer] that can make these combined claims," Zuanic, who also described Tilray’s stock as a “bellwether”, wrote.
Valuation of the Tilray-Aphria merger
Adding further oomph to Tilray’s share price was Amazon’s [AMZN] announcement that it backed proposed US legislation to legalise cannabis at a Federal level, saying it would no longer screen job applicants for cannabis use.
So far, 16 states and Washington DC have legalised adult-use of marijuana, and 36 have legalised it for medical use. New York legalised recreational use on 31 March, and Virginia and New Mexico will be joining the other states later in the summer. Legalisation at a Federal level could help Tilray’s bottom line but, with the stock trading at a premium, just how much upside is there?
Is Tilray’s share price a buying opportunity?
“With a market cap of roughly $9 billion, this mid-cap cannabis stock may not have much more room to run in the near term,” wrote George Budwell on Motley Fool, noting that Tilray’s share price was trading well above projected revenues.
“The shares, after all, are now trading at close to 10 times 2022 projected revenue. That's not an outlandish valuation, but this top pot stock certainly isn't in bargain territory right now,” added Budwell.
Is Budwell right? Well, Tilray’s share price is up 119.11% since the start of the year (as of 7 June’s close), trading near its early-to-mid April levels. In 2022, it is predicted the marijuana grower will pull in $934.51m in sales, up 74% year-on-year. Loses are also expected to narrow to $0.19 a share.
“The shares, after all, are now trading at close to 10 times 2022 projected revenue. That's not an outlandish valuation, but this top pot stock certainly isn't in bargain territory right now” - George Budwell
In May, Tilray received a double upgrade from Jefferies LLC analyst Owen Bennett, who moved his position to buy, along with a $23 price target — a 16.6% upside on 7 June’s close. That upgrade, like Cantor Fitzgerald’s, was based on the combined Tilray-Aphria entity being able to take advantage of opportunities in Europe. Bennett also cited the US market opening up and Tilray’s profitability compared to rivals, estimating that revenue could expand to $2.67bn by 2029.
The combined company is the largest pot grower in Canada, representing $296m in sales of adult-use cannabis. In second place is Canopy Growth [CGC] with $245m in sales.
Tilray has established a supply chain in the European Union, along with production facilities in Portugal and Germany. According to a Tilray December 2020 investor presentation, the German market could be worth $1.3bn by 2025, bolstered by strong medical demand. In the UK, the market could be worth $560m by then, with France worth $475m.
“Covid-19 related lockdowns have presented unique challenges across Canadian and German markets,” said Irwin D. Simon, the company’s chairman and chief executive officer.
“As these markets begin to re-open, Tilray is poised to strike and transform the industry with our highly scalable operational footprint, a curated portfolio of diverse medical and adult-use cannabis brands and products, a multi-continent distribution network, and a robust capital structure to fund our global expansion strategy and deliver sustained profitability and long-term value for our stakeholders.”
“As these markets begin to re-open, Tilray is poised to strike and transform the industry with our highly scalable operational footprint, a curated portfolio of diverse medical and adult-use cannabis brands and products, a multi-continent distribution network, and a robust capital structure to fund our global expansion strategy and deliver sustained profitability and long-term value for our stakeholders” - Irwin D. Simon
Where next for Tilray’s share price?
Tilray’s share price is now up 88.89% over the past 12 months (to 7 June’s close), although it hasn’t all been good news. In the first quarter, the pot grower posted a $1.75 loss per share, missing analyst expectations of earnings of $0.80 a share. For the second quarter, Tilray is expected to post a $0.70 loss, down from a $0.65 loss per share seen in the same period last year.
Back in February, the stock hit a year-high of $67 as it was caught up in the Reddit-buying frenzy. Getting back to that level any time soon might be a bit of a challenge. Still, with analysts backing the stock and US markets opening up, Tilray’s current share price could be good value.