Even at These Prices, Tilray Stock Still Has Too Much Success Priced In

Shares of Tilray (NASDAQ:TLRY) dropped in mid-May after the Canadian cannabis company reported first quarter numbers that didn’t quite live up to expectations. Revenues topped estimates, but profits missed estimates. Despite the profit miss, all the growth trends moved in the right direction. Revenues rose big sequentially. So did cannabis sales volumes. Gross margins improved, too. Broadly, the numbers looked good, but Tilray stock still had people disappointed.

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The big story for the past year is that Tilray has simply been priced for much more than just good. For context, TLRY has always been richly valued relative to peers for no reason outside of market hype. This is the pot stock that went extra parabolic during the mid-2018 cannabis craze. At one point in time, Tilray touched $300. It has since consistently retreated. Now, shares trade hands under $50.

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Naturally, the question following earnings is whether or not TLRY stock has finally bottomed. Ostensibly, the answer appears to be yes. The numbers missed expectations, but were pretty good. The stock dropped. But, not by much. The valuation now makes sense relative to peers.

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In other words, the numbers, the price action, and the valuation all imply that Tilray stock could indeed bottom here just below $50.

But, will it? I’m not sure. As such, I think this is a wait-and-see situation. TLRY has been a falling knife for some time. Reversing the course of this falling knife will take some time, too. There’s no rush to buy in just yet.

Tilray’s Numbers Were Pretty Good

Despite the headline profit miss, Tilray’s first quarter numbers were actually pretty good, and broadly much better than most observers anticipated.

Both revenues and kilograms of cannabis sold rose nearly 50% quarter-over-quarter. Relative to peers Cronos (NASDAQ:CRON) and Aurora (NYSE:ACB) (both of which have reported early 2019 numbers) that near 50% sequential revenue and volume growth rate is very impressive. The growth rates at Cronos were below 20%. Over at Aurora, they were between ~20% and ~40%.

To be sure, Tilray is growing from a small base, but the takeaway nonetheless remains clear. Tilray gained share in the cannabis market in early 2019. On top of that market share expansion, gross margins also improved sequentially, so Tilray importantly gained share without sacrificing margins.

Overall, then, Tilray’s first quarter numbers actually underscore that this company is making material progress in the potentially enormous cannabis space. From that perspective, these numbers could help Tilray bottom here.

Tilray Stock Could Bottom Here, but Will It?

I’ve shied away from Tilray stock over the past several months for one reason: valuation. Quite simply, after this stock popped all the way to $300 on hype alone, it needed to do a lot of compressing before it became even somewhat reasonably valued. On top of that, Tilray reported number in late 2018 which implied that it was growing more slowly than peers, only adding to the stock’s valuation concerns.

But, as stated earlier, Tilray is now growing more quickly than many of its peers. Further, the valuation is now more reasonable, as each kilogram of cannabis produced at Tilray last quarter is being valued at roughly $1.5 million, which is in-line with the valuation for Canopy (NYSE:CGC).

As such, there’s reason to believe that TLRY stock could bottom here. The numbers are reversing course, and the stock is finally trading at arguably reasonable valuation levels.

But, while there’s reason to a believe a bottom is in, I’m not convinced. CGC and TLRY now feature similar valuations. But, Canopy has a $4 billion investment on its balance sheet from Constellation Brands (NYSE:STZ). Tilray has no such investment. They have a few partnerships, but no big money investment.