Time To Buy Or Sell Tilray Brands?

Tilray Brands (NASDAQ: TLRY) has experienced a significant rally, climbing nearly 200% from $0.42 in early July to its current price of $1.24. This surge is primarily driven by the Trump administration’s consideration to reclassify cannabis from a Schedule I to a Schedule III substance. This change would place it alongside drugs like ketamine and anabolic steroids.

In addition to this potential policy shift, Tilray has been working to improve its business operations. The company is focusing on product differentiation and developing new products for its premium segment. It has also expanded its presence in Europe by introducing new EU-GMP certified medical cannabis strains in Germany.

The central question for investors now is whether TLRY stock is still a good buy at its current price of $1.24. While the company’s recent financial and operational performance may not make it an obvious choice, significant upside potential exists, largely due to the potential reclassification of marijuana. This change could bring numerous benefits to the cannabis industry.

For a deeper dive into Tilray’s upside potential, refer to our separate analysis – What’s The Upside Potential For Tilray Brands? The following sections will provide a detailed look into the company’s operating performance, financial condition, and valuation.

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Image by Jaroslav Moravcik from Pixabay

Let’s get into details of each of the assessed factors but before that, for quick background: With $1.2 Bil in market cap, Tilray Brands provides research, cultivation, production, marketing, and distribution of medical cannabis products across multiple business segments, including GMP-certified flowers, oils, vapes, edibles, and topicals.

Here is our multi-factor assessment:

Our View On TLRY Stock

[1] Valuation Looks Low

TLRY Valuation

This table highlights how TLRY is valued vs broader market. For more details see: TLRY Valuation Ratios

[2] Growth Is Inconsistent

• Tilray Brands has seen its top line grow at an average rate of 9.9% over the last 3 years
• Its revenues have grown 4.1% from $789 Mil to $821 Mil in the last 12 months
• Also, its quarterly revenues declined -2.3% to $225 Mil in the most recent quarter from $230 Mil a year ago.

TLRY Revenue Growth

This table highlights how TLRY is growing vs the broader market. For more details see: TLRY Revenue Comparison

[3] Profitability Appears Very Weak

• TLRY last 12 month operating income was $-108 Mil representing operating margin of -13.1%
• With cash flow margin of -11.5%, it generated nearly $-95 Mil in operating cash flow over this period
• For the same period, TLRY generated nearly $-2.2 Bil in net income, suggesting net margin of about -266.3%

TLRY Profitability

This table highlights how TLRY profitability vs broader market. For more details see: TLRY Operating Income Comparison

[4] Financial Stability Looks Strong

• TLRY Debt was $329 Mil at the end of the most recent quarter, while its current Market Cap is $1.2 Bil. This implies Debt-to-Equity Ratio of 26.7%
• TLRY Cash (including cash equivalents) makes up $256 Mil of $2.1 Bil in total Assets. This yields a Cash-to-Assets Ratio of 12.4%

TLRY Financial Stability

[5] Downturn Resilience Is Very Weak

TLRY has fared much worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• TLRY stock fell 97.6% from a high of $63.91 on 10 February 2021 to $1.52 on 23 June 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $3.31 on 11 September 2023 , and currently trades at $1.24

TLRY Stock Performance During 2022 Inflation Shock

2020 Covid Pandemic

• TLRY stock fell 88.4% from a high of $21.36 on 15 January 2020 to $2.47 on 18 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 2 February 2021

TLRY Stock Performance During The 2020 COVID-19 Pandemic

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The Bottom Line

Investing in Tilray Brands is a high-risk, high-reward play, largely dependent on potential regulatory changes. The primary driver is the possibility of the U.S. government reclassifying cannabis from a Schedule I to a Schedule III substance.

This potential policy shift, combined with what some may see as an attractive valuation, could offer a significant upside for investors who have a high tolerance for risk. However, based on the company’s current financial and operational performance, the stock appears to be fairly priced.

As with any investment, there is a risk that this assessment could be incorrect. We strongly recommend that investors carefully evaluate all risk factors before making a decision on TLRY stock.

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