Recent struggles in generating considerable growth put Tilray Brands in a concerning spot — is there a potential for improvement?
Over the last year, Tilray Brands’ (NASDAQ: TLRY) stock has depreciated by approximately 60%. For investors, the apprehension lies in the uncertainty of a swift turnaround.
Predictions from market analysts anticipate a 50%, or even 100%, rise in the stock price over the next 12 to 18 months from its current value. Does this imply a possibility of further downgrades for the stock, or is Tilray at such a low valuation now that the store possesses substantial growth potential at this price point?
The majority of price targets forecast a doubling of Tilray’s stock value
Looking back to June last year, here’s a glimpse of the previous 10 price targets by analysts, suggesting the prospective upside based on the stock’s current value:
Most of these price targets are set around $3.50 or higher — essentially double the present value of Tilray’s stock. Interestingly, this is despite numerous brokerages reducing their price targets for the stock. Even so, current price targets could be too optimistic, and additional downgrades might be forthcoming.
Limited reasons exist to be optimistic about Tilray Brands
One of the main issues Tilray Brands, along with other cannabis firms, is currently facing is the difficulty in driving growth. In the past few quarters, the company’s sales have declined compared to the corresponding period in the previous year.
With sluggish growth, there are few compelling reasons to be enthusiastic about the stock. Currently, Tilray has no gateway to the U.S. market due to the federal prohibition on marijuana. While international marijuana markets are available, they’re not as vast, and legalization in these regions could take years.
The future is not particularly promising for Tilray. Cannabis isn’t demonstrating resilience amidst inflation and weak economic conditions. Moreover, the stock could be more affordable, reinforcing the expectation of more downgrades.
Tilray’s valuation is above average compared to its competitors
Despite a significant plunge in Tilray’s stock value over the past year, it’s not a bargain. Here’s how it compares to other cannabis stocks in terms of its price-to-sales ratio:
With a balance of 1.8, Tilray’s stock is trading at a markedly higher premium than its Canadian competitor, Canopy Growth, arguably representing a safer investment due to backing from prominent investor and partner beer producer Constellation Brands. Tilray, on the other hand, represents a riskier choice but trades at a more favourable revenue multiple.
Investors should steer clear of Tilray’s stock
Analysts have downgraded Tilray’s stock recently, and further downgrades could likely follow, given that the company’s financial performance isn’t likely to significantly improve soon. Tilray continues to vie for market share in the fiercely competitive Canadian cannabis market, and any growth is expected to be marginal. Moreover, Tilray reported a negative gross margin of $11.7 million in its latest earnings report for the period ending Feb. 28.
Investors should steer clear of the stock until there’s an indication of improved business performance. Despite being at its 52-week low, Tilray’s shares could drop further.
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While it’s true that every investment carries some level of risk, the current outlook for Tilray suggests that the return potential may not outweigh that risk. Tilray faces significant hurdles, and its high valuation compared to peers, combined with other challenging factors, suggests that investors might want to look elsewhere for now. That said, the evolving landscape of the cannabis market could present opportunities elsewhere — such as our highlighted under-the-radar Canadian company. Watching the whole market and seeking diverse investment opportunities is always wise.
