Tilray (TLRY) Is a Winner, but the Stock’s Valuation Is Pretty Full, Says Analyst


Let’s take a look at the green. Cannabis company Tilray (TLRY) reported third-quarter earnings that fit in line with the company’s outlook for $10 million in revenue. In fact, due to strong medical sales as well as international exports, Tilray was able to increase revenue by 86% year-over-year.

As new global distribution agreements come to the chalkboard, analyst Scott Fortune of Roth Capital draws out strong expectations for continued medical growth. The analyst says despite a messy start industry-wide for recreational sales, he believes Tilray is well positioned for quick growth in 2019. That being said, Fortune keeps his rating at Neutral as he believes “current stock price reflects plenty of positives, including rampant M&A (or minority investment) speculation.”

Grinding into the numbers – Fortune attributes the high increase in medical sales to better-than-expected patient demand and bulk sales to wholesale channels, which include some international distribution. Gross margins were lower by 31%, which is reckoned to be a result of higher COGS as Tilray increased production in the last quarter. The EPS was $0.08, beating consensus by $.04. Operating expenses were in line with predictions, but ultimately the analyst believes TLRY will need to up expenses in order to profit from the recreational market.

Fortune noted, “TLRY management provided color on the initial roll out of recreational sales. Demand has been overwhelmingly strong from both recreation and surprisingly medical consumers. Supply has lagged the robust demand due to two factors: Government regulators being extremely slow in approving licenses for readied production and currently very limited infrastructure and retail stores in place to handle the demand. Many of the LPs promised production have yet to come to fruition, leaving empty shelves without additional supply. Tilray just received final approval for the High Park cultivation, to bring on the final 50% of production to the recreation market after 3 month delay tied to regulators’ back logs,” In reaction, Fortune is lowering the revenue expectations for the next few quarters.

Regardless of the setbacks that seem to be out of the company’s control, Fortune sees “mid 2019 as the start of supply and infrastructure meeting demand and 2H19 accelerating with new vape, edible, and beverage products.”

Fortune looks forward to what he calls a “very impressive 2019.” “TLRY’s strong medical cannabis sales (both internationally and in Canada), along with Canadian recreational sales, are both poised for rapid growth. We still consider TLRY among the best positioned companies among Canadian Licensed Producers (LPs).”

Wall Street is not convinced just yet on this medical cannabis maker, but cautious optimism is circling, as TipRanks analytics demonstrate TLRY as a Buy. Based on 3 analysts polled in the last 3 months, 2 rate a Buy on Tilray stock while 1 issues a Hold. The 12-month average price target stands at $150, marking a 46% upside from where the stock is currently trading. (See Tilray’s price targets and analyst ratings on TipRanks)

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