Late September, investors bought up shares of cannabis suppliers ahead of the legalization in Ontario, Canada. Of all the stocks in this space, Tilray (TLRY) stood out the most as the stock jumped over 350% to touch an intraday high of exactly $300. However, the stock gave up nearly 50% of it’s gains and is now trading at $140.
Cowen analyst Vivien Azer believes TLRY is still undervalued and, as such, reiterates an Outperform rating, while boosting the price target to $172.00 (from $62.00), which implies a potential upside of 23% from where the stock is currently trading.
Azer commented, “As we think about valuation for TLRY […], we lay out a framework for how to value long-term durable growth. We believe it is appropriate to establish a relative revenue growth multiple, (formulaically EV/revenues divided by revenue growth), similar to a more traditional P/E/G ratio, which provides for better comparability to historical precedents. We also note solid correlation across high growth consumer branded companies relative to revenue growth. The group’s average relative growth multiple is ~0.45x, although we would conservatively estimate that cannabis stocks, and TLRY in particular, should, at a minimum, trade in line with the peer group.”
“By applying these rates towards relative growth multiples we imply a very wide range of potential outcomes, which we think reflects the views of the investment community on TLRY given its wild swings but strong underlying demand. We settle on applying a 0.50x relative multiple to our 94% long-term growth rate, and thus we ascribe an EV/FY3 revenue multiple of 47x, implying a target price of $172,” the analyst continued.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Vivien Azer has a yearly average return of 32.3% and a 73% success rate. Azer has a 161.9% average return when recommending TLRY, and is ranked #55 out of 4908 analysts.
Tilray shares are currently trading up 0.5% to $140.67.