The Covid-19 pandemic rattled a number of market sectors. The cannabis market has seen its ups and downs, and the owners of Tilray (NASDAQ:TLRY) stock suffered staggering losses in February and the first half of March.
Indeed, shareholders watched aghast as Tilray plummeted within a few weeks from around $19 to $2.50. However, those who held onto their shares have recovered some of their losses, as the price is now just over $10.
What investors need now is some sort of assurance that Tilray is fundamentally sound. Not long ago, Tilray CEO Brendan Kennedy predicted that at least 12 cannabis companies would go out of business this year. Should investors worry that Tilray might be on that list?
A Peer Pulls TLRY Stock Down
May’s final trading day wasn’t wonderful for the owners of cannabis stocks. TLRY stock, for instance, shed 5.2% on May 29, thereby taking its share price back below the psychologically significant $10 resistance level.
What caused this drop? It was what’s sometimes known as the “sympathy effect.” That means that when the stock of a company in a particular sector, especially a market leader, declines sharply, its peers will often suffer similar selloffs.
However, the declines of the peers’ stocks are usually temporary. Investors will typically come back to their senses and realize that the problem is specific to the company and will not necessarily affect the entire industry.
In a nutshell, that’s what happened to Tilray when cannabis giant Canopy Growth (NYSE:CGC) posted horrendous earnings results. Canopy’s reported a fiscal fourth-quarter net loss of 1.3 billion CAD. That amounts to 3.72 CAD per share.
Analysts, on average, were expecting a net loss, but only of 59 cents CAD per share. Thus, the market chopped 20% off of Canopy Growth’s share price that day.
But Canopy’s results don’t necessarily reflect badly on Tilray. In actuality, there are reasons to believe that the decline of TLRY stock has created a prime buying opportunity.
A Tale of Two Marijuana Stocks
Let’s compare the results of Canopy and Tilray. We already saw that Canopy’s most recently reported fiscal quarter was a disaster.
In contrast, Tilray’s first-quarter results featured encouraging data. For one thing, the company’s quarterly sales amounted to $52.1 million. That was better than analysts’ average estimate, which was $49.3 million.
Tilray’s Q1 sales of recreational cannabis increased 23% versus Q4. Moreover, the company’s domestic medical cannabis business expanded by 21% quarter-over-quarter.
On top of all that, Tilray had $174 million of cash at the end of Q1. That’s a vast improvement over the $97 million of cash that Tilray had at the end of the previous quarter. And it’s not too shabby, considering the economy crashed in March.
Even though the company is apparently in good fiscal shape, Tilray is still willing to make forward-thinking, cost-cutting moves. A prime example of that is its recent decision to close down its Ontario-based greenhouse known as High Park Gardens.
This action will, according to the company, save Tilray around $7.5 million per year. Tilray CEO Brendan Kennedy acknowledged shareholders’ potential ambivalence regarding the greenhouse closure but also emphasized the likely benefits of the move:
“The decision to close a facility is never easy but we are confident that this will immediately put Tilray in a better position to achieve our goals of driving revenues across our core businesses and working towards positive adjusted EBITDA by the end of 2020.”
Clearly, Tilray isn’t content to rest on its laurels even after it reported great quarterly results. That’s a sign of a company that’s willing to take measures to ensure that its strength continues even while its peers may struggle.
The Bottom Line on TLRY Stock
Some traders dumped their shares of Tilray because of Canopy’s problems, and that’s a real shame. Tilray has remained surprisingly solid even in these challenging times, so shareholders should stay the course and possibly even add to their positions if the stock price dips further.