You need to read more than headlines before jumping headlong into a stock.
For the past three months, the only question with cannabis firm Tilray (NASDAQ:TLRY) was whether it was better to buy the stock or smoke its products.
But that all changed (supposedly) yesterday when it announced its fiscal Q4 earnings. The day after the announcement, the stock rallied more than 25% after getting pounded for months.
Why did it soar? Because it had positive net income for the quarter.
Fantastic news, right!
Tilray Stock Still Struggles
Let’s get beyond that one bright spot. TLRY is set to lose $336 million this year just ended. It lost $100 million in fiscal 2020. Its $170 million acquisition of Ontario-based grower (and SweetWater Brewing owner) Aphira added to that big loss, and slightly to Tilray’s increased revenue.
Earnings were -11 cents a share; estimates were -8 cents a share. On the bright side, last year TLRY stock lost 26 cents a share, so earnings are improving.
But TLRY stock is up 54% in the past 12 months, yet its industry index is only up 17%, about the same as the S&P 500 index. That’s a significant premium. And the most likely culprit is its meme stock status.
Granted TLRY is well off its massive 52-week high of 67 and it’s trading closer to its 52-week low of 4.41. But its performance is still well beyond the numbers it’s posting right now.
And it’s in a new phase of its growth. It now has to ingest its big acquisition and keep its revenue stream expanding with so much debt. This is a crucial time for its business. And it will demonstrate to its big backers whether it has what it takes to be a real, global player.
And one final point, it’s authorized a new share issuance to fill its coffers for more acquisitions. That means more debt and more assimilation as well as diluting the stock of current investors.
Not All Bad for Tilray
Now, I have never considered myself an optimist. But I do have to admit that my “steely-eyed realism” can be a bit pessimistic and in a forward-looking world like investing, you need some rose coloring for young industries.
There’s no doubt, that TLRY stock has a compelling story in the cannabis sector.
In 2018, it was the first Canadian cannabis company to get an export license for the US market for medical testing. Later that year it signed a deal with big pharma Novartis (NYSE:NVS) to distribute and co-brand Tilray’s non-smokable/non-combustible medical cannabis products worldwide.
That has also given TLRY access into markets in Germany, Portugal, Australia, New Zealand, and Latin America.
This overcomes one of my big hurdles with Canadian cannabis stocks. A viable cannabis company is going to need distribution into the US or Europe or other markets to be a viable long-term company.
It also has a 9-digit deal with AB Inbev (NYSE:BUD) for CBD-infused beverages (for now). And TLRY also inked a deal in 2019 with Authentic Brands Group. The brand marking firm owns labels like Juicy Couture, Greg Norman, and Nine West along with about four dozen other brands.
Don’t Buy the Hype
Unlike most Canadian cannabis stocks, this one is a tough one. TLRY has a lot going for it but it also has a lot to manage. And for most cannabis companies, management isn’t always ready to dive headlong into a diversified, multinational business with gigantic corporate partners.
Its debt load, scope and breadth of deals, and growing desire for more acquisitions by diluting its stock are all big yellow flags.
But given its partners, I’m encouraged that it’s getting decent advice from some of them about its growth strategy.
This post-earnings bump is stupid. I wouldn’t chase the stock here. My comfort level for risk-takers and long-term investors is about 13 as buy target. Once the US legalizes cannabis that will change.
However, the anti-cannabis pushback is just getting started. Be prudent. Be patient.
Note: This article originally appeared at InvestorPlace.
Disclosure: On the date of publication, GS Early did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
GS Early has been an award-winning financial writer and editor for nearly three decades, working with many of the leading financial editors and publishers during that time.