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Tilray: A budding stock, or an overvalued burn-out?

Tilray, Inc (NASDAQ:TLRY) saw their stock price soar on Wednesday, closing up 20.64 percent to $62.13. The strong daily return follows Tuesday night’s earnings call, the company’s first earnings report since its IPO in July. While investors longing Tilray stock are surely thrilled about the strong stock price appreciation (an investor who bought at IPO would have a return of over 200 percent at this time, and the share price has doubled in the past two weeks alone), there also exists fierce speculation regarding the sustainability of its current price.

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Strong earnings and an optimistic outlook

The company reported strong revenue growth with a second-quarter earnings report showing a sales increase of 95.2 percent since last year, or up to $9.7 million. In fact, the company is still not profitable, reporting an earnings-per-share of negative 17 cents. While the reported sales of $9.7 million beat analyst expectations of $9 million, the earnings missed the negative 9 cents per share expectation for this year as well as last year’s negative 1 cent per share loss reported. The worse EPS is said to be due to increased operating costs.

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Regardless, Tilray CEO Brendan Kennedy is optimistic about the company’s outlook and growth potential. Kennedy stated in an interview Tuesday that they are “thrilled with [the] second quarter results” and that “the fundamentals of [the] business are strong.”

Support for the company’s growth potential

There’s also strong support for the company’s growth potential, including the recent supply agreement with Nova Scotia Liquor Corporation which will expand Tilray sales of recreational marijuana to the Nova Scotia province. It was another addition to the many existing supply agreements they’ve already made throughout Canada, and they anticipate more to follow in the coming weeks. These supply agreements put them in the top producer ranks in the global legal cannabis market which, according to some projections is expected to grow to $146.4 billion by the end of 2025.

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Additionally, Tilray is being closely watched by Guinness and Smirnoff Vodka maker Diageo plc (NYSE:DEO) who is looking for a marijuana supply partner to become yet another beverage company entering into the cannabis industry. If they can land an agreement similar to the deal Canopy Growth (TSX:WEED)(NYSE:CGC) signed with Constellation Brands (NYSE:STZ), it would be a huge win for the company.

Pessimism from some in the industry

Not everyone is so optimistic. Some analysts speculate that the share price is significantly overvalued and that the stock price growth is not sustainable. Experts recently gave Tilray stock a $43 valuation, or 30.8 percent less than its current end-of-day trading price of $62.13. Given the stock price, the company currently has a valuation of around $5 billion with only $9.7 million in sales. However, it is not uncommon in high-growth industries to have high valuations despite little to no profit. Take Netflix, Amazon, and Tesla as classic examples of stocks considered to be overvalued that continue to see stock price appreciation. Only time will tell if Tilray is the Amazon of the cannabis industry, or the Sears (NASDAQ:SHLD).

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