Tilray Stock Rises Sharply, Reddit Traders Push for Short Squeeze

Marijuana stocks might be the next focus for retail investors as the recent surge in meme stocks like AMC Entertainment fizzles. Tilray (TLRY) stock has been an investor favorite over the last week. The stock has gained 16 percent in the previous five trading sessions and 139 percent YTD. How high can Tilray stock go in what looks like a new short squeeze fueled by Reddit traders?

Marijuana stocks got a boost after e-commerce giant Amazon said that it would support federal marijuana legalization initiatives. The Marijuana Opportunity, Reinvestment, and Expungement Act (MORE Act) was reintroduced in the House in May. If approved, the bill would deschedule marijuana and legalize it at the federal level.

Tilray shares rose 5 percent on June 7 and closed at $19.72. The stock was still climbing in pre-market trading on June 8. Tilray stock gained 16 percent in the last five trading sessions. We can attribute the significant gains to the renewed interest in the marijuana sector and its growing popularity among retail investors on Reddit’s WallStreetBets community.

It’s difficult to predict how high Tilray stock can go since the share price is driven by short squeezes and investor sentiments. According to Fintel, roughly 26 percent of Tilray’s trading volume on June 7 was sold short compared to 18 percent on May 26. This indicates that there are substantial Tilray shorts that might be squeezed. The previous squeeze drove Tilray stock to a 52-week high of $67 in late January before it dropped drastically.

According to Market Beat, analysts' average target price is $19.75 for Tilray stock, which is 2 percent above its current price. Among the 13 analysts tracking Tilray, five recommend a buy, while eight recommend a hold. None of the analysts recommend a sell. Their highest target price of $32 is 65 percent above the stock's current price, while their lowest target of $4.75 is 76 percent below.

On June 2, Cantor Fitzgerald upgraded Tilray stock to overweight from neutral and reduced its target price to $22 from $30.25. The analyst thinks that Tilray stock has favorable tailwinds. Consumer demand is expected to recover after the coronavirus pandemic ends and marijuana is decriminalized at the federal level.

Tilray trades at an NTM EV-to-sales multiple of 10.5x, which looks attractively priced compared to other marijuana stocks. Canopy Growth and Cronos Group are trading at NTM EV-to-sales multiples of 14.4x and 22.4x, respectively.

The marijuana industry is still in the early stages with various business verticals poised to drive growth. Tilray’s recent merger deal with Aphria provides it the best platform for growth. The combined company has an advantage over its Canadian and U.S. competitors in the race to become the leading marijuana company in the U.S. In the short term, Tilray stock might fall and create better entry opportunities.

The marijuana sector is estimated to double in value by 2025, and several investors are looking to capitalize. Cresco Labs, Curaleaf Holdings, Green Thumb Industries, and Trulieve Cannabis are the best marijuana stocks to buy now.