Tilray Stock Has Shown Lots of Progress, but the Valuation Is Frothy

Ahead of its earnings report, Tilray (NASDAQ:TLRY) came under some pressure. Note that TLRY stock fell about 9% or so. Then again, many other cannabis stocks fell as well.

But volatility is nothing new for Tilray. For the most part, Wall Street liked the performance for the quarter.

Revenues rose by 20.5% to $56.6 million, which compared to the Street consensus of $56 million. The company’s bottom line was also better than expected. The net loss was $2.9 million or 2 cents a share. As for the analysts’ consensus, it was for a net loss of 14 cents a share.

The big bright spot for the quarter was international medical sales, which soared by 191% to $11.7 million (the growth was 26% to $4.2 million in the Canadian market). Here are some of the announcements in the quarter:

• The company entered an agreement with Grow Pharma to import and distribute medical cannabis products in the U.K.
• Tilray received approval from Portugal’s regulatory authorities for its medical products from a GMP-certified facility in the country.
• The company entered a partnership with Worldpharma Biotech for the distribution of medical products in Spain.
• Tilray signed an agreement with Hormosan to promote its medical products in Germany. The focus will be primarily on pain management and neurology.

Aphria Deal

Going forward, a key to the growth story will be the merger with rival Aphria (NASDAQ:APHA). The deal will create the largest adult-use cannabis producer in Canada. There will also be a low-cost infrastructure, a wide array of brands, an extensive medical research program, and access to the U.S. market.

Tilray has indicated that the deal is expected to close in the second quarter and the pre-tax cost synergies are estimated at $78.7 million. After the merger, Aphria CEO Irwin Simon will take the CEO spot and Tilray’s Brendan Kennedy will become the chairman.

On the earnings call, Kennedy had this to say about the deal: “The combined company will have a portfolio of carefully curated and complementary brands in every major cannabis category, including flower, pre-roll, oils, capsules, vapes, edibles and beverages and across all consumer segments, economy, value, core, mainstream and premium.”

He went on to talk about how the company has about 17% of the adult-use market, more than any of its competitors, and how the company will make even more inroads in Europe.

Bottom Line on TLRY Stock

The past few years have seen much restructuring at Tilray. And for the most part, the results have been standout. In the quarter, the company was able to post adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $2.2 million, which was a $37.5 million improvement on a year-over-year basis.

All in all, the company is in much better financial shape and has a liquid balance sheet. The merger with Aphria will provide much more scale and depth to the business.

Now while all this is certainly great, it’s probably a good idea for investors to be cautious though on TLRY stock.

Of course, it has been caught up in the Reddit frenzy of trading, which has targeted highly shorted stocks like GameStop (NYSE:GME) and AMC (NYSE:AMC). Since September, the shares have gone from $5 to a high of $67!

Granted, Tilray stock is now back down to $32, but the valuation is still fairly hefty, with the shares trading at 17 times revenues. Thus, for now, it might be best to wait for a better price on this one.

On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling.  He is also the author of courses on topics like the Python language and COBOL.