Being a serious investor means understanding how much a stock is worth in relation to its current price. As tricky as it might sound to estimate future price targets without a team of analysts at your beck and call, it's actually not so bad, provided that you're willing to settle for a ballpark figure.
And that's exactly what potential buyers are keen to do with Tilray's (TLRY -3.80%) growth potential in the rest of the year. Now that its merger with Aphria is finished, the newly formed entity is a veritable juggernaut in the cannabis space, but shareholder returns haven't reflected it yet. In February, its price nearly touched $32, and on several occasions this year it has floated above $24. But could it grow enough to reach $25, given that it isn't profitable and its quarterly revenue was shrinking as of its last earnings report? Let's investigate.
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What are the factors at play?
Tilray's current price is around $17.95. For Tilray to hit $25 this year, it would need to grow by roughly 39.5% in the next six months. That's a tall order, but it isn't unobtainable for a rapidly expanding company which just clinched a transformative merger. Keep in mind, its stock has already grown by nearly 140% this year so far.
In terms of volatility, swings of 5% or 6% in a single day are common for the stock, due in part to news in the cannabis sector or in the company's regional markets. So, there's likely enough general interest in the stock to provide the liquidity for large price movements over time. More importantly, upcoming earnings reports have the potential to be powerful catalysts.
Data by YCharts.
The key point to understand is that Tilray hasn't yet had its first full quarter of earnings that account for the addition of Aphria's assets and revenue. Because the merger transaction closed in early May 2021, investors will need to wait until the third quarter to get the full picture. But, the second quarter's report could still provide enough good news to send the stock soaring, even though it won't reflect a full quarter of data about the newly formed entity's performance.
In the reports, the market will be looking for progress in realizing some of the estimated $81 million in cost savings that management touted as one of the benefits of the merger with Aphria. Likewise, revenue growth, earnings growth, and improvement to gross margin will be critical to demonstrate, as Tilray was struggling with these issues well before the merger. It'll be hard for the stock to rise in value if shareholders get turned off by worse-than-expected results.
There are also a few upcoming minor catalysts that might contribute a small amount to the stock's growth. On June 1, management will present at the Jefferies Virtual Healthcare Conference. A week later, it'll be in a discussion at the Stifel Cross Sector Insight Conference. Shareholders will probably be able to glean a few tidbits from the presentations, and it's possible that the market will react to any new initiatives that are revealed at the conferences. But, don't hold your breath for anything too major.
What's the verdict?
Wall Street analysts don't seem to think that Tilray will reach $25 this year. The average price estimate across 15 different analysts is $19.53. Nonetheless, at least one analyst believes that the price could reach as high as $32, so opinions differ substantially.
In this case, I have to disagree with the skeptics. While I can't say with certainty that Tilray's stock will hit $25 by the end of this year, I'm confident that it could once the market has enough information about the value of the company after the merger. Still, shareholders should be patient. Integrating all of Aphria's resources could take as long as two years, and the company has a long timeline of growth.
