Why Tilray Stock Is Still Worth a Look Despite Earnings Flop

We often hear jokes about the lofty valuations of cannabis stocks. They have huge market capitalizations with only a tiny fraction of them in actual revenues. Tilray (NASDAQ:TLRY) is perhaps the poster child for that joke since its short squeeze that occurred last September. Then Tilray stock skyrocketed to $300 per share in a day, but only to perhaps mark the absolute top forever.

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First, let me assure you that I am not a perma-bull on pot stocks. Yes, I only trade them from the long side, but I use the technicals to guide my decisions. A few weeks ago, I shared a long entry opportunity in Tilray stock and it paid quickly.

This morning, the stock is spiking and there could be another setup looming.

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Last night, TLRY reported earnings and investors are happy with what they saw because TLRY stock is spiking on the headline. But in classic TLRY fashion, the knee jerk reaction last night was violent as the stock fell $5, then rallied at $4. This morning, it is still holding in the green up 3%.

The results were mixed as management beat the sales expectations but also reported some extra expenses. For now, this is something Wall Street should ignore for as long as TLRY is a growth stock.

If this were a mature company, then investors can demand tighter profit controls, but this is a situation where the cannabis companies are plowing into completely new territory so they deserve a lot of leeway, more so than usual in fact.

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The cannabis industry is still in its infancy on Wall Street. Even the so-called experts rely more on hunches and guessing to forecast the fundamentals. So perhaps until there is enough history to establish tangible expectations, I greatly rely on the technicals to guide me. Charts don’t lie and they outline the trends and important levels.

However, relying on charts doesn’t mean I completely dismiss the importance of the company metrics. Perhaps the most important one that TLRY reported last night was that it sold 2,053 kilos, which is three times that of last year. This combined with a 110% increase in revenues for the same period, which tells me that the company is executing well on its growth plans.

TLRY’s Chief Executive Officer Brendan Kennedy explained away the margin pressures by highlighting the expansion of its facilities. The company added seven new facilities, so the ramp-up time will keep profitability at odds until the revenues catch up to the expenses. Overspending is the necessary evil that growth companies have to endure.

Meanwhile, they maintain a relatively healthy balance sheet with $500 million in cash. This will ensure that they are able to pursue their next focus areas in the U.S. and Europe. This is not only by targeting the recreational legalization trends, but this also includes making the CBD and medical applications.

Bottom Line on Tilray Stock

In short, the company is succeeding in its mission, so Tilray stock should have more upside potential in the long run. Those who want to bet on its success for years to come need not worry about the minutia of action here. Moreover, they are not going at it alone. Management struck a partnership with Anheuser-Busch InBev (NYSE:BUD), which validates TLRY’s efforts in my opinion. If it’s good enough for a massive company like BUD, then it’s good enough for the general investor.

Meanwhile, for those who prefer to trade the stock short term instead, the technicals can definitely provide a road map.

Year-to-date, TLRY stock came into the earnings event only up 2.4% compared to the S&P 500’s 12% for the same period. Clearly, the stock is stuck below $80 per share since December. Even worse is how TLRY compares to Canopy Growth (NYSE:CGC), Cronos (NASDAQ:CRON) and Aurora Cannabis (NYSE:ACB), which are up 70%, 108% and 100%, respectively, for the same period.