Tilray’s Q1 Earnings Could Boost Its Stock Price

The meltdown in global financial markets amid COVID-19 dragged Tilray (NASDAQ:TLRY) stock down to $2.43 on March 18. Since then, the stock has made a significant recovery. As of May 6, the company was trading at $7.41, which represents a rise of 205% from its lows on March 18. Many state and local authorities declared that medical and adult-use cannabis is essential. The company’s stock price rose due to the expectation of growth in cannabis sales during the lockdown and the $2 trillion financial stimulus package. However, the company is still trading at a discount of 85.5% from its 52-week high of $51.03. Meanwhile, Tilray will likely report its first-quarter earnings, which ended on March 31, after the market closes on May 11. So, should you buy Tilray before its first-quarter earnings?

Analysts expect Tilray’s revenue to rise

For the quarter, analysts expect Tilray to report revenue of $50.7 million—7.9% sequential growth from $46.9 million in the fourth quarter of 2019. The expanded product portfolio could drive the company’s revenue. In December 2019, the company introduced a variety of Cannabis 2.0 products, which include edibles, vapes, and beverages. In edibles, Tilray launched Chowie Wowie and Goodship, while it introduced Canaca and Marley Natural in vapes. Meanwhile, in the beverage category, the company introduced Everie, non-alcoholic CBD-infused beverages, in partnership with Anheuser-Busch InBev and Labatt Breweries of Canada.

Tilray acquired Manitoba Harvest, a hemp food manufacturer, in February 2019. Since then, the company has expanded its footprint to make its hemp products available in over 17,000 retail stores across 20 countries. Moving towards the medical cannabis segment, the company sells its products in 15 countries across five continents. In December 2019, the company received EU GMP certification for its manufacturing facility in Cantanhede, Portugal. The company has various cultivation sites, research labs, processing, and packaging and distribution sites in Portugal. Tilray wants to export medical cannabis to Europe from its Portugal facilities.

Tilray’s EBITDA to improve sequentially

Analysts expect the company to report an EBITDA loss of $25.5 million in the first quarter—an improvement from a loss of $35.3 million in the fourth quarter of 2019. The revenue growth, higher gross margin, and lower operating expenses could drive the company’s EBITDA during the quarter. Analysts expect the company’s gross margin to improve from 23.6% to 32.0%. Introducing higher-margin Cannabis 2.0 products could drive the company’s gross margin. Tilray’s management has taken certain initiatives, like a 10% reduction in staff, to lower its operating expenses in the first quarter.

Liquidity

By the end of the fourth quarter, Tilray had $96.9 million of cash and cash equivalents. The company secured $60 million credit in February. The company expects to spend $100 million–$115 million this year on its operation, payment of interest and principal, and capital expenditures. Tilray’s management hopes that its EBITDA is positive by the fourth quarter.

Analysts’ recommendations for Tilray

Analysts favor a “hold” rating for Tilray. Among the 16 analysts, 75% recommend a “hold,” 12.5% recommend a “buy,” and 12.5% recommend a “sell.” As of May 6, analysts’ 12-month target price was $10.80, which represents a 12-month return potential of 45.8%. Last month, Jefferies downgraded the stock from a “hold” to an “underperform” rating. However, the firm raised its target price from $3.80 to $5.0.

YTD stock performance

So far this year, Tilray has lost 56.7% of its stock value. The weak fourth-quarter performance, weakness in the cannabis sector, and global sell-off led to a fall in the company’s stock price. Meanwhile, the company has underperformed its peers and the cannabis ETF. Canopy Growth (TSE:WEED), Cronos Group (NASDAQ:CRON), and Aphria (NYSE:APHA) have fallen by 20.2%, 21.1%, and 24.0% YTD, respectively. The ETFMG Alternative Harvest ETF (NYSE:MJ) has declined by 30.8% this year.

Although Tilray has shown a significant recovery from its March 18 lows, I would wait until the company reports its first-quarter earnings on Monday to make any investment decision. The company reported higher-than-expected EBITDA losses in the last three quarters. So, investors should avoid the stock for now.