Analyst Says Tilray Growth Expectations Are Way Too High

Cannabis stocks are getting high praise from Wall Street analysts lately, with several top companies landing new buy ratings. Unfortunately for Tilray Inc TLRY investors, yet another analyst said Thursday he is staying on the sidelines when it comes to the stock.

The Analyst

Stifel analyst W. Andrew Carter initiated Tilray with a Hold rating and C$37 ($27.62) price target.

The Thesis

While Carter is bullish on top cannabis pick Canopy Growth Corp CGC, Carter said Tilray shares don’t look cheap even after a 50.3 percent year-to-date sell-off.

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Carter is forecasting Tilray will generate some impressive revenue growth over the next two years, expanding annual sales from $70 million to nearly $500 million by fiscal 2021. Unfortunately, $500 million is well below consensus analyst estimates of $600 million, and the stock is already pricing in extreme long-term growth.

Tilray management has said long-term consumer packaged goods gross margins will be at least 50 percent and adjusted EBITDA margins will be at least 25 percent. Carter said these targets may be ambitious given the nature of the business.

“While Tilray’s asset light approach reduces the capital intensity and provides flexibility, we believe the intense regulatory demands of this category could pressure margins in the future and we believe this model presents some risk to being able to fully capitalize on global opportunities which we believe suggest a less fulsome valuation relative to its capital intensive peers,” Carter wrote in the note.

Carter’s lukewarm initiation comes just one day after Oppenheimer analyst Rupesh Parikh initiated coverage of Tilray with a Perform rating and said the “full valuation” will cap the stock’s rebound potential in the near-term.

Price Action

Tilray shares traded lower by another 1.7 percent to $34.96 on Thursday.

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