Estimating the Intrinsic Value of Tilray, Inc. (NASDAQ:TLRY)

Stjepan Kalinic
August 26, 2021
Source: Shutterstock

While cannabis remains one of the prominent growth stories, Tilray (NASDAQ: TLRY) is having one of the more peaceful periods in the history of this extremely volatile stock.

Yet, after the latest declines, the stock could not make a fresh low, showing a sign of potential bottoming. In this article, we will examine the latest developments and examine the current intrinsic value based on the discounted cash flow (DCF) valuation model.

Remember, though, that there are many ways to estimate a company's value, and a DCF is just one method. For those keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.

View our latest analysis for Tilray

More M&A Activity

Tilray just announced an investment into MedMen Enterprises. The company obtained a majority of the senior secured convertible bonds mainly from Gotham Green Partners, which will result in a significant equity position pending regulatory approvals.

Interestingly, Gotham Green will receive about 9 million shares as a part of the deal after shareholders vote on the share increase that has been postponed once again, this time to September 10. If the share increase has not been approved by December 1, 2021, Gotham Green Partners may elect to receive cash.

While MedMen (CNSX: MMEN) is far from the peak from a few years ago when it was one of the high flying stocks of the sector, it still holds 21 licenses and 25 retail locations across key urban locations, especially California.

After the Tilray and Aphria merger earlier this year, M&A activity signals that the sector is consolidating in just a few big names.

Examining the DCF method

We will use a two-stage DCF model, which, as the name states, considers two stages of growth. The first stage is generally a higher growth period, heading towards the terminal value, captured in the second "steady growth" period.

To start, we need to estimate the next ten years of cash flows. Where possible, we use analyst estimates, but when these aren't available, we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage and that companies with growing free cash flow will see their growth rate slow over this period. We do this to reflect that growth tends to slow more in the early years than in later years.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, and so the sum of these future cash flows is then discounted to today's value:

10-year free cash flow (FCF) forecast

2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Levered FCF ($, Millions) US$4.58m US$46.9m US$91.4m US$208.9m US$287.9m US$348.7m US$402.2m US$447.9m US$486.1m US$518.1m
Growth Rate Estimate Source Analyst x5 Analyst x5 Analyst x4 Analyst x2 Analyst x2 Est @ 21.09% Est @ 15.36% Est @ 11.35% Est @ 8.54% Est @ 6.58%
Present Value ($, Millions) Discounted @ 5.8% US$4.3 US$41.9 US$77.2 US$167 US$218 US$249 US$272 US$286 US$294 US$296

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$1.9b

The second stage is also known as Terminal Value, and this is the business's cash flow after the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.0%. We discount the terminal cash flows to today's value at the cost of equity of 5.8%.

Terminal Value (TV)= FCF2031 × (1 + g) ÷ (r - g) = US$518m× (1 + 2.0%) ÷ (5.8% - 2.0%) = US$14b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$14b÷ ( 1 + 5.8%)10= US$8.0b

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$9.9b.

In the final step, we divide the equity value by the number of shares outstanding. Compared to the current share price of US$13.5, the company appears quite undervalued at a 39% discount to where the stock price trades currently.

The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.

NasdaqGS: TLRY Discounted Cash Flow August 26th, 2021

The assumptions

The calculation above is very dependent on two assumptions. The first is the discount rate, and the other is the cash flows. If you don't agree with these results, go to the calculation yourself and play with the assumptions.

The DCF does not consider the possible cyclicality of an industry or a company's future capital requirements, so it does not give a full picture of its potential performance. Given that we are looking at Tilray as potential shareholders, the cost of equity is used as the discount rate rather than the cost of capital (or a weighted average cost of capital, WACC), which accounts for debt. In this calculation, we've used 5.8%, which is based on a levered beta of 0.800.

Beta is a measure of a stock's volatility compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, a reasonable range for a stable business.

Next Steps:

Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. If a company grows at a different rate, or if its cost of equity or risk-free rate changes sharply, the output can look very different. Why is the intrinsic value higher than the current share price? For Tilray, we've put together three fundamental elements you should explore:

  1. Risks: For example, we've discovered 3 warning signs for Tilray (1 shouldn't be ignored!) that you should be aware of before investing here.
  2. Management: Have insiders been ramping up their shares to take advantage of the market's sentiment for TLRY's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
  3. Other High-Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high-quality stocks to get an idea of what else is out there you may be missing!

PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock, just search here.

Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Simply Wall St character - Warren

Simply Wall St

Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.