The Institutions Put A Bottom In Tilray
After years of struggling the U.S. cannabis industry appears to be gaining some momentum and that is good news for Tilray Brands, Inc (NASDAQ: TLRY). The recent passage of the MORE act through the House of Representatives is the latest example and one that may ultimately open the door to full legalization in the U.S. The bill passed in a 220 to 204 vote with bipartisan support and is now headed to the Senate. There is no word on when the Senate will vote on the bill but there is no guarantee it will pass. The takeaway is that legalization is on the way and closer than ever but there may still be a stumbling block or two before it comes to fruition. The detail we are focusing on now, however, is that the institutions have begun to have some faith in legalization and are buying this stock.
The institutional holdings in Tilray are still small at 12.45% but they are growing. The institutions purchased roughly 4.4% of the market cap over the past 5 quarters with the bulk of that activity happening over the last 3 quarters. Based on the latest earnings report and business update, we think that activity will continue if not accelerate even without a clear path to nationwide legalization. Tilray Brands' business is hampered by the U.S. legalization situation but it is still in business and its efforts to grow and operate efficiently are paying off and well ahead of expectations.
Tilray Brands Moves Up On Mixed Results
Tilray Brands reported a mixed quarter but one that was mixed in just the right ways. The revenue of $151.87 million is up 22.6% over last year but missed the consensus by 300 basis points. That miss was offset, however, by wider margins and an unexpected profit on the bottom line. On a segment basis, cannabis sales increased by 32% while beverage/alcohol (don’t forget Tilray owns Sweetwater Brewing Co,) grew by 69% fueled by acquisitions and territory expansion.
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Moving down to the bottom line, the company reported a 100 basis point improvement in the gross margin that resulted in GAAP profitability ahead of schedule. The company says it has already achieved $76 million in synergies related to the merger with Aphria and will hit the $80 million target by the end of May 2022, five full months ahead of schedule and with an additional $20 million in run-rate savings by the end of the year. On the bottom line, the company reported $0.09 in GAAP earnings or $0.17 ahead of the broad market consensus.
The Analysts Are Still Holding Tilray Brands
There hasn’t been any notable analyst activity post-earnings release but we expect it to be bullish when it comes. Until then, the consensus estimate is a firm Hold with a price target that is still more than 45% above the current price action. While the price target has been trending lower over the past few months, the consensus rating has held firm but, more importantly, new analysts are getting on board. When new analysts get on board a stock they bring new money and new investors to help drive up share prices.
The Technical Outlook: Tilray Brands Is In Reversal And Melting Up
Shares of Tilray Brands have been in a protracted downtrend for well over a year but that is over. The legalization news coupled with institutional buying and strong results has the stock melting upward and in a reversal. The next target for resistance is near the $8.70 level and possibly as high as $9.00, if it is surpassed we see this stock moving up into the $11 to $12 range and possibly higher. If we get some more positive news on U.S. legalization the sky’s the limit for this stock.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Tilray (TLRY) | $1.41 | -1.4% | N/A | -5.22 | Hold | $2.63 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
