Tilray Brands Sees 35% Rally as Investors Weigh Valuation After Canadian Cannabis Legalization News

If you are eyeing Tilray Brands right now, you are probably wondering if its latest jump is just a blip, or the start of something bigger. The stock has turned heads recently, rallying 35.3% in just the past week, and up 28.8% over the last month. That kind of surge is hard to ignore, especially if you have a keen interest in trends shaping the cannabis sector or see opportunity in companies that might be undervalued by the broader market.

But while the recent short-term gains are impressive, the longer picture is still marred by a tough three-year tumble of 58.7% and a modest year-to-date improvement of 10.3%. Some investors are seeing this shift in price momentum as a signal that risk perceptions may finally be changing, possibly helped along by evolving policies around cannabis and shifting market sentiment.

So, is Tilray actually undervalued given all this movement? One commonly used toolkit in fundamental analysis assigns Tilray a value score of 2 out of 6. In other words, it checks the box for being undervalued on two major measures, while still falling short in others. These traditional approaches certainly tell part of the story, but are they the most useful tools for weighing Tilray’s future potential?

Let’s dive into the valuation methods investors use to judge Tilray Brands and see how the numbers shake out. There might be an even sharper way to size up the value of this dynamic company.

Tilray Brands scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Tilray Brands Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a cornerstone of investment valuation and aims to estimate a company's intrinsic value by projecting its future cash flows and discounting them back to today's value. For Tilray Brands, this means analysts and valuation models consider how much cash the company is expected to generate over the years and then translate those future dollars into present-day terms, accounting for risk and the time value of money.

Currently, Tilray Brands has a last twelve months free cash flow (FCF) of -$125 million. While this negative figure can be eye-catching, projections suggest a turnaround. Analysts provide annual estimates for the next five years, forecasting FCF to reach $45 million by 2030, at a yearly growth rate that accelerates in the latter years according to extrapolated models. Although there is optimism for future improvement, initial projections are still relatively modest.

According to the DCF model, Tilray’s fair value per share stands at $1.18. With the current market price exceeding this intrinsic value by roughly 36.6%, the analysis suggests that Tilray is currently overvalued based on fundamental cash flow projections.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Tilray Brands.

Our Discounted Cash Flow (DCF) analysis suggests Tilray Brands may be overvalued by 36.6%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Tilray Brands Price vs Sales

For a company like Tilray Brands, which has yet to consistently report profits, the price-to-sales (PS) ratio is often the preferred yardstick for valuation. This metric helps investors gauge how much they are paying for each dollar of revenue. It is especially relevant for growth companies in emerging sectors like cannabis where earnings can be volatile or negative.

Growth expectations and risk play a critical role in determining what is considered a "normal" price-to-sales ratio. Companies with high growth potential or lower risk typically command higher multiples, reflecting investor optimism for future expansion and cash flow generation. In contrast, slower growth or elevated uncertainty usually leads to lower ratios, signaling caution.

Tilray is trading at a PS ratio of 2.19x, which is below the pharmaceuticals industry average of 4.43x and also lower than the peer group at 1.50x. Simply Wall St’s proprietary “Fair Ratio” for Tilray stands at 2.38x, a metric that considers not just industry standards and peer levels, but also factors like the company’s profit margins, growth forecasts, risk profile, and market cap. This provides a more nuanced benchmark than simple comparisons, offering a tailored assessment for unique companies like Tilray.

Because Tilray’s PS ratio of 2.19x is quite close to its Fair Ratio of 2.38x, it suggests the stock is trading more or less in line with its fundamental outlook based on revenue-driven multiples.

Result: ABOUT RIGHT

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Tilray Brands Narrative

Earlier we mentioned there might be an even sharper way to understand valuation, so let’s introduce you to Narratives. Narratives are a simple, powerful approach where you shape the story behind a company by bringing together your perspective on its future prospects with the numbers, such as your expected fair value, future revenue, and margin assumptions. By connecting Tilray Brands’ evolving story to your financial outlook, Narratives turn broad forecasts into actionable fair values. This reveals not just what the market thinks today, but also what you believe could happen tomorrow.

This approach is accessible to everyone on Simply Wall St’s platform, used by millions of investors worldwide through the Community page. Narratives make it easy to weigh your own thesis against current prices, so you can decide if you’re ready to buy, hold, or sell. Narratives are updated dynamically whenever new earnings, news, or big events hit the market. For example, some investors see Tilray’s European expansion and product innovation and set optimistic price targets as high as $1.50, while more cautious users, concerned about regulatory hurdles and losses, value it as low as $0.60. No matter your stance, Narratives help ground your investment decisions in both story and numbers and keep you informed as those stories change.

Do you think there's more to the story for Tilray Brands? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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