Key Points
Tilray doesn't have appealing growth prospects, despite diversifying into beverages in recent years.
It hit record revenue last year, but it was also deeply in the red.
Without a catalyst or significantly stronger financials, the stock may continue to fall further.
Tilray Brands (NASDAQ:TLRY) stock has been crashing hard this year, losing close to 60% of its value thus far. On Monday, it closed at $3.72, which is an 84% decline from its 52-week high of $23.20. The stock may seem dirt cheap, but here's why even at less than $4, I still wouldn't buy it.
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Tilray's growth prospects simply aren't that good
Although Tilray's stock is down big this year, it's for good reason: the business just doesn’t look all that appealing ot invest in.
With hopes of significant marijuana reform fading in the U.S., there's been less and less of a reason for investors to be bullish on Tilray’s business. Meanwhile, the Canadian market is highly competitive, and margins are small. The company has been expanding via acquisitions, loading up on beverage brands that other companies are more than willing to get rid of because they aren't top performers. And while that's a good way to temporarily boost the company's revenue, it doesn't fundamentally put Tilray in a good position to achieve strong growth in the future.
Although the cannabis company reported record net revenue of $915 million in its most recent fiscal year, which ended on May 31, it still incurred a net loss of more than $105 million. It's also continued to be a cash-burning machine, using up $69 million during the fiscal year. Tilray has a long way to go in proving to investors that it's worth investing in.
The stock could still go lower
There isn't a magic number that makes Tilray's stock suddenly worth buying. It has crashed by 97% over the past five years, and time after time, Tilray has burned investors who thought the stock had bottomed out, only for it to end up hitting a new low.
I don't believe the company's pivot to beverages is a good move, as it adds more complexity and pieces into the mix, for the sake of getting bigger and bolstering the top line. It's a strategy that I don't think will ultimately pay off, as I believe Tilray is just biding its time until the U.S. market opens up (assuming legalization takes place in the future, which is by no means a guarantee).
Its losses are likely to continue to drive the stock lower, and whether it's $4 or $3, or less than that, the stock will remain a highly speculative and risky buy, one that most investors are likely better off simply avoiding.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.