Could Tilray’s Q2 Results Boost Its Stock Price?

  • Tilray (TLRY) is set to report its second-quarter earnings after markets close tomorrow.
  • In the quarter, analysts expect Tilray’s revenue to rise more than 300% YoY (year-over-year), but for its net loss to widen.

In the second quarter, analysts expect Tilray’s revenue to rise 321.9% YoY to $41.1 million from $9.7 million. Sequentially, they expect its revenue to rise by 78.5%. We expect recreational cannabis sales, hemp food sales from the acquisition of Manitoba Harvest, and growth in international medical markets to drive the company’s revenue.

Could Tilray’s Q2 Results Boost Its Stock Price?

Tilray is investing in expanding its production and manufacturing footprint in Canada. On February 28, it acquired Manitoba Harvest, one of the world’s largest hemp-based natural food producers. Tilray expects Manitoba Harvest to contribute $20 million to the company’s total revenue every quarter. In February, the company also acquired Natura Naturals Holdings. Natura operated a 662,000 square-foot greenhouse cultivation facility in Leamington, Ontario.

On May 23, TLRY’s Biocant Park manufacturing facility in Cantanhede, Portugal, received good manufacturing practice certification. The company is planning to serve European customers from this facility.

Could Tilray’s Q2 Results Boost Its Stock Price?

Net profits forecast to fall

In the second quarter, analysts expect Tilray’s net loss to widen YoY to $23.3 million from $12.8 million, which translates to $0.25 per share. However, their forecast implies an improvement from $33.2 million in Q1 2019.

Analysts expect the company’s gross margin to contract YoY to 27.8% from 42.9%, and its operating expenses to rise YoY from $15.2 million to $26.8 million. We expect its cultivation-facility and third-party suppliers costs to narrow its gross margin, and acquisition-related, general and administrative, and marketing and sales costs to drive the company’s operating expenses.

Could Tilray’s Q2 Results Boost Its Stock Price?

Tilray’s stock performance

Tilray stock has fallen 12.7% since its first-quarter earnings release on May 14. In that quarter, the company’s sales were better than expected, but its net loss surpassed analysts’ estimate. Recent scandals in the cannabis sector and trade tensions have hurt the company’s stock.

This year, Tilray has fallen 39.7%. It has underperformed peers Aphria (APHA), Aurora Cannabis (ACB), and Cronos Group (CRON), which have returned 7.9%, 27.0%, and 22.9%, respectively. In their last quarters, Aphria beat expectations and Cronos reported impressive sales growth.

Valuation multiples

The 12.7% decline in Tilray’s stock price since its last earnings report has lowered its valuation multiple. As of August 9, the company’s forward EV (enterprise value)-to-sales multiple was 11.9x, lower than its average 2019 multiple of 25.2x but higher than peers’ average of 5.44x. On Friday, Aphria’s, Aurora’s, and Cronos’s forward EV-to-sales multiples were 2.15x, 12.50x, and 18.11x, respectively.

Analysts’ recommendations for Tilray

Of the 16 analysts following Tilray, most (68.8%) recommend “hold,” 25.0% recommend “buy,” and 6.3% recommend “sell.” Meanwhile, their average 12-month target of $79.30 for Tilray implies an 86.3% upside based on it August 9 price.

On July 17, Compass Point lowered Tilray’s price target from $41 to $38. Oppenheimer initiated coverage of the stock with a “perform” rating on June 5.