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Why Tilray’s Valuation Is Concerning

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Tilray’s valuation

As we have discussed in our valuation series, Tilray’s (TLRY) valuations looked stretched compared to its peers. At some point, investors’ (MJ) frenzy on the stock had to die out, and the valuation had to justify the price levels. But are we there yet?

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High valuation?

As of April 5, 2019, Tilray was trading at a forward EV-to-sales multiple of 15x, which was above the peer median of 6.2x. The peers’ median includes companies such as Canopy Growth (WEED), Aurora Cannabis (ACB), and Aphria (APHA). Tilray’s multiple essentially means that at current levels, investors are paying about 15 times per unit of Tilray’s next-12-month sales when its peers on average were paid just about six times per unit of sales over the same period. This figure doesn’t mean that Tilray is expensive, but considering it has similar growth and risk prospects compared to peers, the current valuations look stretched. Tilray, however, was trading at a discount to its historical two-year average of 56x.

Tilray was trading at an EV-to-EBITDA (enterprise value-to-earnings before interest, tax, depreciation, and amortization) multiple of 189x compared to peers’ median of 24x. Once again, the multiple indicates the company is trading at a significant premium to its peers. However, compared to its historical average of 681x, the stock appeared to have corrected, and the correction may not be over yet.

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