Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...

Just six months ago, shares of Canadian cannabis company Tilray (TLRY) were flying high, and trading for more than $214. Six months later, Tilray's down in the dumps. Although three times its IPO price, Tilray stock has lost 68% of its value since September, and sells for less than $68 a share.

That's still not cheap enough for Jefferies, though.

Marijuana plants

Image source: Getty Images.

A sell rating for Tilray

This morning, investment banker Jefferies & Co. initiated coverage of Tilray stock with an underperform rating and a $61 price target that implies the shares still have another 10% or so to fall. Clearly, Jefferies is of the opinion that investors should sell Tilray, but why?

Check out the latest earnings call transcript for Tilray.

"arguably inferior"

Jefferies' biggest and broadest objection to investing in Tilray stock is that the stock is simply "arguably inferior" to the larger cannabis producers it competes with, such as Aurora Cannabis (ACB -7.79%) at $8 billion in market capitalization, and Canopy Growth (CGC -3.79%) at $15.4 billion. But Jefferies' criticisms don't end there.

As detailed on TheFly.com today, Jefferies has a whole litany of complaints about Tilray, its business, and its valuation. Let's start with the business.

As Fool.com contributor Sean Williams explained last month, one of the big advantages Tilray has over smaller pot producers is its emphasis on developing "brand-name medical marijuana products" such as cannabis oils, hemp, and other alternative products -- products he argues will sell for more robust profit margins than mere "dried cannabis flower."

Maybe that's true in the long term, but as of today, Tilray is not even in the top four medical marijuana producers in Canada by market share. The company is still selling only about $33 million worth of marijuana products annually -- and a earning net profit margin of negative 121% (according to data from S&P Global Market Intelligence). This is actually one of Jefferies' biggest objections to Tilray, that the stock is "too dependent on an unclear medical outlook." Although the analyst acknowledges that Tilray is "well placed in medical," Jefferies warns that the stock's "future value ... will be driven by IP for which little visibility near term."

And indeed, Williams echoed this concern last month, warning that Tilray isn't anywhere close to earning a profit from its business, while its emphasis on higher value-added research, combined with its need to expand production and market its brands, "could easily keep Tilray in the red for years to come."

Outside the medical market, Jefferies blasts Tilray's recreational marijuana business strategy as "not ... well thought through." Similarly, the analyst warns that Tilray's "optionality" in the U.S. market is "less impressive."

I know, this is vague and confusing language, but it's the kind of verbiage we've come to expect from Wall Street analysts covering pot stocks. So to translate: Essentially, whenever they discuss "optionality," they're asking, "What are the chances that this stock will make big sales in the U.S., if and when the federal government legalizes marijuana?"

And Jefferies thinks Tilray's chances are not great.

"too expensive"

Now, I'm in no position to opine on the prospects for U.S. federal marijuana legalization myself. Fortunately, Jefferies concludes its argument in favor of selling Tilray with something I do know a bit about: value.

After running down all the reasons it's not a fan of Tilray's business model, Jefferies concludes that Tilray stock is simply "too expensive for its outlook," especially as compared to rivals like Aurora Cannabis and Canopy Growth.

So let's do that. Let's compare Tilray to Aurora and Canopy.

According to S&P Global data, Tilray is currently unprofitable, but doing about $33 million in business annually, and valued at $6.7 billion. Thus, this stock is selling for 204 times trailing sales. (And yes, that's very expensive.)

By way of comparison, Aurora Cannabis (also unprofitable) selling for $7.7 billion costs 87 times its $89 million in annual sales. Rounding out the trio, relative giant Canopy is valued at $15.5 billion, sells nearly as much pot as the other two companies combined ($115 million), and costs 134 times sales. (Spoiler alert: Canopy isn't profitable, either.)

So how do we value these three companies? The easy answer is: None of them are profitable, and all of them cost simply insane multiples to sales, so none of them are worth buying -- full stop.

But if you're dead set on investing in marijuana stocks anyway, then it seems to me the safest stock to own, out of these three, has to be Aurora Cannabis. Not only does it carry the lowest price-to-sales ratio of the three, Aurora is also expected to turn GAAP profitable next year. Canopy, the next cheapest, isn't expected to turn a GAAP profit before 2021.

To me, at least, that makes Aurora Cannabis the best bet of the three.