Tilray Brands' (TLRY 6.98%) stock price is down around 60% over the past year. The danger for investors is that things may not be getting any better any time soon.
Analyst expectations call for the price to rise over the next 12 to 18 months by 50%, or even 100%, from where it is right now. Is the stock due for some downgrades, or has Tilray reached such a low value that there's a lot of upside for the stock at its current price?
Most price targets suggest Tilray's stock will double
Going back to June of last year, here's a breakdown of the last 10 price targets set by analysts, and the level of upside they suggest the stock has, based on its value today:
Source: MarketBeat. Chart by author.
Most price targets are set at $3.50 and higher -- roughly double where Tilray's stock is today. And that's even as the majority of brokerages lowered their price targets for the stock. But even the current price targets may be too optimistic, and more downgrades could be on the way.
There's not a whole lot of reason to be bullish on Tilray Brands
A big problem for Tilray Brands and other cannabis companies these days is that it's a challenge to generate growth. In recent quarters, the company's sales are down from where they were compared to the previous year.
TLRY Revenue (Quarterly YoY Growth) data by YCharts
Without strong growth, there isn't much of a reason to be bullish on the stock. Tilray doesn't have a way to enter the U.S. market right now, which remains off-limits due to the federal ban on marijuana. And while it can pursue international marijuana markets, they aren't nearly as large, and it can also take a long time (i.e. years) before legalization takes place there as well.
The outlook simply doesn't look great for Tilray. Cannabis isn't proving to be resilient amid inflation and weak economic conditions. Another reason investors should brace for more downgrades is that the stock isn't all that cheap either.
Tilray's valuation is high relative to those of its peers
Even though Tilray's stock nosedived over the past year, it still isn't necessarily a dirt-cheap buy. Here's how it stacks up to some other cannabis stocks with respect to its price-to-sales multiple:
TLRY PS Ratio data by YCharts
At 1.8, Tilray's stock trades at a noticeably higher premium than Canadian rival Canopy Growth, which I'd argue is a bit of a safer investment than Tilray, if for no other reason than it has the backing of a strong investor and partner in beer maker Constellation Brands. Tilray's a riskier option, and yet it's trading at a much better revenue multiple.
Investors should avoid Tilray's stock
Analysts downgraded Tilray's stock in recent months, and I think it's probable that more downgrades will come as the company's financial performance isn't likely to improve drastically in the near future. Tilray continues to fight for market share in a highly competitive Canadian cannabis market, and any growth will be minimal at best. Meanwhile, its bottom line remains firmly in the red, with Tilray even reporting a negative gross margin of $11.7 million in its most recent earnings report for the period ending Feb. 28.
Until there's a reason to expect that the business will do better, investors are better off avoiding the stock. Although it's at its 52-week low, shares of Tilray can still go much lower.
