$TLRY - Tilray Stock Due Diligence - Strong Earnings EPS

I. Introduction This is not investment advice. I own Tilray shares myself with an average entry price of $14.97. I would like to outline some bull & bear scenarios regarding the company below, along with a general assessment and reasons why Tilray is a good stock with further growth potential. II. Numbers (mostly) do not lie First of all, I always look at the numbers when it comes to stocks, because I like to buy a solid stock for my money, apart from a few exceptions. The problem with a value approach is that stocks never trade "cheap" without a reason. The negatives are priced in, so in 99.9% of cases there is no such thing as a "cheap" company. Everything is fairly valued. Therefore, the figures can only give information about the value, if you do not look at them isolated. However, it is mandatory to know them. Regarding Tilray, it is known that the quarterly numbers far exceeded expectations. Earnings per share were $0.18, well above the forecast. But here's the first point: Tilray's EPS was -$0.09 for August 2020, -$0.37 for November 2020, and -$0.97 in February 2021. It was only after the merger with Aphria that Tilray was able to report in the black. So the question to be answered is whether Aphria helped to switch to profit. Here, in any case, a clear `no' applies with regard to EPS. Aphria had an EPS of -$1.14 in the last figures before the merger. The quarters before that were better with -$0.42 and -$0.02, but also not positive. So based on EPS alone, it cannot be said that the positive result is due to the merger with Aphria. Other Key Figures (Based on Tilray's Interim Unaudited Financial Statement for the Year ended May 31, 2021): Tilray currently has positive free cash flow at $3.3 million. Adjusted EBITDA would be $40.7 million for the year based on quarterly numbers, still positive since 2020. Revenue would be $513 million. This is all nice, but only suggests a relatively favorable price-to-sales ratio of about 12. The recently announced quarterly numbers alone only say that the black numbers (at least) are not coming solely from the merger with Aphria. This is the first time the company has presented such numbers, so little can be inferred from them going forward, except for hope and some positive indicators. III. Opportunities 1. Tilray's position in the market Tilray has become the largest cannabis producer in the world after its merger with Aphria. However, this does not mean that Tilray produces and distributes cannabis in raw form, rather Tilray has several product ranges that now serve almost the entire market. Not only medical cannabis, but also others such as craft beer or products not directly associated with the typical scope of cannabis. The market in which Tilray is currently the best positioned player is tiny compared to the market of alcohol or other raw materials for which cannabis would also be suitable (be it medical applications or textiles and food). Cannabis is explicitly permitted for consumption in two countries. For medical use, however, it is already approved in 47 countries. 2. Regulations as the main criteria for development The market that can open up here is worth tens if not hundreds of billions of dollars. Should regulations loosen, Tilray, as the largest producer, is well positioned to serve this market. With its market cap of $6.2 billion, Tilray is valued at just enough to be quickly caught up by revenues if not profits in the coming years, assuming regulations continue in the current direction. But that is also the most important keyword: regulations. If country approvals change or do not continue to develop as they have in the past, Tilray's hands are tied. There is no way to bypass them and move into other markets. 3. Other risks Competition with the black market Tilray is a legal company and accordingly must comply with applicable law. However, it is in direct competition with one of the largest black markets in the world, at least for one of its products. For this competitor, no laws and regulations apply, which means that Tilray has a higher price tag on its products. However, this point can easily be refuted by the fact that the price for the control and security that go hand in hand with it are out of proportion to the price premium. One would think so. But here the opinions are divided, what influence a legalization has on the black market. After some research, one could only read in not particularly named sources that the black market has become larger after legalization. But it is clear that it does not disappear. Bloomberg Canada, for example, states that the illegal market has shrunk significantly since legalization. Opinions differ, however, as to what role taxes play in this and under what circumstances people would still use the black market. ​ Competition on the legal market Cannabis is not subject to a patent. Other producers can serve the market just like Tilray, that can be especially Cannopy Growth, which is positioned not far behind Tilray in the market. However, if the bet on regulators works out, the market will be so enlarged that even if four big players were to serve the market, it would still far exceed the current market cap of all cannabis companies. ​ The Cannabis Market is New The cannabis market has only really started to pick up steam since 2016, and can develop quickly accordingly. This can be a risk factor for Tilray's business plan if it cannot be flexibly adjusted. But again, it should be noted that Tilray is theoretically best positioned as the largest player in the market and even if the cannabis market can evolve, the product is relatively consistent. The only problem is the price pressure in the new market. If the market grows, it is clear that prices will drop. That will have an impact on sales and profitability. In my opinion, this is the only negative argument that is really valid. Here we can only hope that similar profitability will result as with alcohol or other consumer goods stocks, and that ultimately Tilray will come out on top here due to sheer size. Tilray is thus more likely to dominate the market, as their capacity means that they in fact also have lower losses than smaller companies. 4. Conclusion Should the cannabis market open up a larger portion or possibly its full potential after loosened regulations, Tilray will be right up front. While there are a few risk factors to consider. Ultimately, though, it comes down to two things. For the short-term investors: can Tilray continue to deliver such strong numbers over the next few quarters. For the long-term investors: How will it fare with regulations around cannabis? If these are loosened, Tilray is certainly the right address to participate in the then emerging market. TL;DR: Smokes pleasantly. Good stuff, good company and therefore good stock.

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$TLRY - Tilray Stock Due Diligence - Strong Earnings EPS

bullish

I. Introduction

This is not investment advice. I own Tilray shares myself with an average entry price of $14.97.

I would like to outline some bull & bear scenarios regarding the company below, along with a general assessment and reasons why Tilray is a good stock with further growth potential.

II. Numbers (mostly) do not lie

First of all, I always look at the numbers when it comes to stocks, because I like to buy a solid stock for my money, apart from a few exceptions. The problem with a value approach is that stocks never trade "cheap" without a reason. The negatives are priced in, so in 99.9% of cases there is no such thing as a "cheap" company. Everything is fairly valued. Therefore, the figures can only give information about the value, if you do not look at them isolated. However, it is mandatory to know them.

Regarding Tilray, it is known that the quarterly numbers far exceeded expectations. Earnings per share were $0.18, well above the forecast.

But here's the first point: Tilray's EPS was -$0.09 for August 2020, -$0.37 for November 2020, and -$0.97 in February 2021. It was only after the merger with Aphria that Tilray was able to report in the black. So the question to be answered is whether Aphria helped to switch to profit. Here, in any case, a clear `no' applies with regard to EPS. Aphria had an EPS of -$1.14 in the last figures before the merger. The quarters before that were better with -$0.42 and -$0.02, but also not positive.

So based on EPS alone, it cannot be said that the positive result is due to the merger with Aphria.

Other Key Figures (Based on Tilray's Interim Unaudited Financial Statement for the Year ended May 31, 2021): Tilray currently has positive free cash flow at $3.3 million. Adjusted EBITDA would be $40.7 million for the year based on quarterly numbers, still positive since 2020. Revenue would be $513 million. This is all nice, but only suggests a relatively favorable price-to-sales ratio of about 12. The recently announced quarterly numbers alone only say that the black numbers (at least) are not coming solely from the merger with Aphria. This is the first time the company has presented such numbers, so little can be inferred from them going forward, except for hope and some positive indicators.

III. Opportunities

1. Tilray's position in the market

Tilray has become the largest cannabis producer in the world after its merger with Aphria. However, this does not mean that Tilray produces and distributes cannabis in raw form, rather Tilray has several product ranges that now serve almost the entire market. Not only medical cannabis, but also others such as craft beer or products not directly associated with the typical scope of cannabis.

The market in which Tilray is currently the best positioned player is tiny compared to the market of alcohol or other raw materials for which cannabis would also be suitable (be it medical applications or textiles and food). Cannabis is explicitly permitted for consumption in two countries. For medical use, however, it is already approved in 47 countries.

2. Regulations as the main criteria for development

The market that can open up here is worth tens if not hundreds of billions of dollars. Should regulations loosen, Tilray, as the largest producer, is well positioned to serve this market. With its market cap of $6.2 billion, Tilray is valued at just enough to be quickly caught up by revenues if not profits in the coming years, assuming regulations continue in the current direction.

But that is also the most important keyword: regulations. If country approvals change or do not continue to develop as they have in the past, Tilray's hands are tied. There is no way to bypass them and move into other markets.

3. Other risks

  • Competition with the black market

Tilray is a legal company and accordingly must comply with applicable law. However, it is in direct competition with one of the largest black markets in the world, at least for one of its products. For this competitor, no laws and regulations apply, which means that Tilray has a higher price tag on its products.

However, this point can easily be refuted by the fact that the price for the control and security that go hand in hand with it are out of proportion to the price premium. One would think so. But here the opinions are divided, what influence a legalization has on the black market. After some research, one could only read in not particularly named sources that the black market has become larger after legalization. But it is clear that it does not disappear. Bloomberg Canada, for example, states that the illegal market has shrunk significantly since legalization. Opinions differ, however, as to what role taxes play in this and under what circumstances people would still use the black market.

  • Competition on the legal market

Cannabis is not subject to a patent. Other producers can serve the market just like Tilray, that can be especially Cannopy Growth, which is positioned not far behind Tilray in the market.

However, if the bet on regulators works out, the market will be so enlarged that even if four big players were to serve the market, it would still far exceed the current market cap of all cannabis companies.

  • The Cannabis Market is New

The cannabis market has only really started to pick up steam since 2016, and can develop quickly accordingly. This can be a risk factor for Tilray's business plan if it cannot be flexibly adjusted. But again, it should be noted that Tilray is theoretically best positioned as the largest player in the market and even if the cannabis market can evolve, the product is relatively consistent.

The only problem is the price pressure in the new market. If the market grows, it is clear that prices will drop. That will have an impact on sales and profitability. In my opinion, this is the only negative argument that is really valid. Here we can only hope that similar profitability will result as with alcohol or other consumer goods stocks, and that ultimately Tilray will come out on top here due to sheer size. Tilray is thus more likely to dominate the market, as their capacity means that they in fact also have lower losses than smaller companies.

4. Conclusion

Should the cannabis market open up a larger portion or possibly its full potential after loosened regulations, Tilray will be right up front. While there are a few risk factors to consider. Ultimately, though, it comes down to two things. For the short-term investors: can Tilray continue to deliver such strong numbers over the next few quarters. For the long-term investors: How will it fare with regulations around cannabis? If these are loosened, Tilray is certainly the right address to participate in the then emerging market.

TL;DR: Smokes pleasantly. Good stuff, good company and therefore good stock.

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5 min

20.00

Target Price

9/ 10

Confidence

2-6 Months

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