Why Tilray Inc Is Compelling for Contrarian Investors
Marijuana stocks experienced some buying following the midterm elections, in which Maryland and Missouri voted to legalize recreational cannabis. That’s after 19 other states, plus D.C. and two U.S. territories already legalized recreational pot.
While the federal legalization of recreational marijuana has yet to materialize, the White House is pardoning people who were federally convicted of simple possession of cannabis.
While there’s no guarantee that federal pot legalization will come to the U.S. anytime soon, the operating climate for pot companies has improved in the country.
The ETFMG Alternative Harvest ETF (NYSEARCA:MJ), which is an indicator of the performance of the broader marijuana stock market, moved to $6.02 on November 15, up by 33% after dropping to $4.54 on October 13. The ETF failed to hold at $6.02 and is back below $6.00.
I fully expect the near-term trading of cannabis stocks to remain volatile. Moreover, I view the current price weakness as a contrarian opportunity.
Chart courtesy of StockCharts.com
One of my favorite marijuana stocks is Tilray Inc (NASDAQ:TLRY). The company is based in Canada but has exposure to the massive U.S. marijuana market, along with ventures in Europe, Australia, New Zealand, Latin America, and other regions.
A few years ago, TLRY stock was all hyped up. It traded at a whopping $300.00 on September 19, 2018, a month prior to the legalization of recreational pot in Canada.
Since then, disappointing legal cannabis sales in Canada and the failure of the U.S. to decriminalize recreational marijuana have stalled the pot stock market. As of this writing, shares of Tilray Inc are down around $3.00.
The outlook for Tilray stock, however, is positive for contrarian investors who are looking for a compelling risk/reward opportunity. I’m not saying TLRY stock will ever reach $300.00 again, but for investors who are willing to accept the volatility of the marijuana stock market, Tilray stock could return big long-term gains.
Tilray Inc delivered $628.4 million in revenues in fiscal 2022, compared to $513.1 million in fiscal 2021 and $391.0 million in fiscal 2020.
Analysts expect the company’s revenues to jump to $853.8 million in fiscal 2023 and to $966.3 million in fiscal 2024, translating to an attractive forward multiple of 2.4 times its consensus 2023 revenue estimate. (Source: “Tilray Brands, Inc. (TLRY),” Yahoo! Finance, last accessed December 19, 2022.)
TLRY Stock Chart Shows Strong Upside Potential
Tilray stock’s four-year chart below shows an initial spike after the legalization of cannabis in Canada. This was followed by TLRY stock getting caught in a steady downward channel and failing to establish any firm base until late 2020.
Shares of Tilray Inc surged in February 2021 after pot stocks were targeted by “Reddit” users that pumped up the sector. Of course, this was not sustainable, and was followed by a new downward channel to Tilray stock’s July–October base.
After the severe price deterioration, TLRY stock mounted an attack and rose above its 50-day moving average of $3.58 and eyed its 200-day moving average of $4.27.
Chart courtesy of StockCharts.com
Next up for Tilray stock are $8.66 and $11.08, followed by $13.90 and $22.34. This would represent a staggering return, and it wouldn’t be anywhere close to the stock’s $300.00 high.
Contrarian investors might want to take a look at some marijuana stocks right now. The situation for cannabis stocks will likely improve, and I expect more states to join the bandwagon of legalizing pot.
Tilray Inc is a key player in the marijuana sector, and TLRY stock looks attractive at its current distressed price.