A 1,200% run in less than a month back in 2018 put shares of Tilray (NASDAQ:TLRY) firmly on the map for all the right reasons. The Canadian pharmaceutical and cannabis company had just IPO’d and was riding the wave of legalization which was sweeping across North America. But as the old saying goes, what goes up, must come down.
Like Icarus who flew too close to the sun, Tilray has fallen hard from those hazy summer days of pre-COVID yesteryear. As of Monday’s close, their shares are down a full 98% over the past two years but that’s not to say there isn’t any opportunity to be had. For investors who missed out on the initial rally or for those who have been bag holding since the highs, there is some good news to be had as Wall Street warms to Tilray’s potential upside.
Becoming Less Bearish
On Monday, efferies became the first sell-side voice in a while to tone down the negativity and to offer a glimmer of hope to long-suffering bulls. Analyst Owen Bennett upgraded shares from Underperform to Hold, noting that after a 70% fall this year already is probably enough and that shares shouldn’t go much lower from here. He added that management’s cost cutting measures have been drastic but the positive after-effects should be starting to filter through in the coming quarters.
Tilray’s most recent earnings report was in August and though it was lighter than analysts expected, revenue was still up 10% year on year. Of note, total cannabis kg equivalents sold increased more than 100% so the demand is certainly there. Management realized $13 million in cost savings last quarter and confirmed they’re on track for an impressive $55 million this year total. Not bad for a company with a market cap slightly more than 10x that. Adjusted EBITDA was still in the red but far less so than this time last year or last quarter, again showing progress in the right direction.
Brendan Kennedy, the company’s CEO, struck a bullish note with the report when he said:
"We are particularly encouraged by the revenue growth of our International Medical business during the second quarter. International Medical revenues now exceed those of our Canadian Medical business and we anticipate growth in this segment to outpace our other segments in the coming quarters. With our significant cost-cutting and balance sheet actions behind us, we have positioned Tilray to enter the second half of 2020 in a stronger position so we can remain focused on achieving profitable growth in all our markets and deliver break-even or positive Adjusted EBITDA in the fourth quarter of 2020.”
Looking Towards Q4
It certainly would be something of note if they managed to report positive Adjusted EBITDA by Q4. With shares close to all-time lows and well below where they IPO’d little more than two years ago, it’s likely that current prices will be viewed as unbelievably cheap in the coming quarters.
If Monday’s session was anything to go by, then there is already some big-boy positioning going on for the end of year. Tilray’s December 18 2020 $10 call options had some of the highest implied volatility in the entire market which indicates big moves are expected. With shares needing at least a 100% move from current prices to put those options in the money, it looks like the game is firmly afoot.
The risk/reward profile is very favorable with that kind of action ahead, while the RSI is currently at 28, indicating the stock is in oversold conditions right now.
