Should You Buy Tilray Brands Stock Before Oct. 9?

Key Points

• Its stock has been rallying lately due to hopes around marijuana reform in the U.S.

• The cannabis producer's fundamentals have not been strong to date.

• Tilray has struggled to generate growth, and its bottom line remains deep in the red.

• 10 stocks we like better than Tilray Brands ›

Shares of Tilray Brands (NASDAQ: TLRY) have been hot in recent months. Since the start of July, the stock has soared by around 300%. Excitement around possible cannabis reform in the U.S. has investors bullish on the Canadian-based company's potential growth opportunities.

The big question is, can this rally continue? With earnings set to come out next week, on Oct. 9, there could soon be another catalyst to look out for. If Tilray shows progress and is able to improve its financials, that may lead to even further gains. But if that isn't the case, then there may be some pullback.

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Should you take a chance and buy Tilray stock before it releases its upcoming results, or are you better off holding off?

Image source: Getty Images.

How has Tilray's stock normally performed after earnings?

Tilray's business has struggled to grow and stay out of the red over the years, and that's put it in the doghouse with investors. Although it has been surging in recent months, it's still down over 65% in the past five years. It hasn't been a great buy.

The bad news is that the company's quarterly earnings numbers don't normally spark a positive rally. In fact, it's not unusual to see a sell-off after its numbers come out.

TLRY data by YCharts.

The challenges in a hyper-competitive cannabis market in Canada make it difficult for not only Tilray but other marijuana producers to do well. Its earnings reports often serve as painful reminders of how the business simply isn't performing up to expectations. Given the stock's recent rally, there's the potential that it makes Tilray's stock vulnerable for yet another steep sell-off this month.

Tilray's financials need a lot of work

In July, Tilray wrapped up its most recent fiscal year, for the period ended May 31. Its net revenue totaled $821.3 million, which was an increase of 4% year over year. That may not sound too bad, but consider that its core cannabis business experienced a 9% decline, with that segment's sales falling to $249 million.

Over the years, Tilray has expanded into alcohol and wellness products. These have helped diversify its revenue mix and allowed it to grow its top line, making it less dependent on cannabis. Without acquisitions padding its sales, it may have had an even more difficult time in attracting growth investors.

However, all those acquisitions haven't been paying off on the bottom line. Tilray's operating loss last year totaled $174.7 million. It was an improvement from the previous year when its loss was a whopping $2.1 billion, but that was largely due to impairment charges. In short, this is a money-losing business with minimal organic growth.

Tilray's stock isn't worth gambling on

Cannabis investors have heard for years about how marijuana reform and legalization are coming soon in the U.S., and yet, there's been virtually no progress. Even bills to pass safe banking for the industry have stalled. I've seen this cycle many times before in the industry, when the hype around reform eventually gives way to the gloom and reality that nothing is on the horizon.

Tilray is a highly speculative stock, and it has effectively been a way for investors to bet on whether marijuana reform is likely. When hopes are high, shares of Tilray go up. But when reality comes crashing down, so too does the stock. The company's earnings likely won't be a positive catalyst for the business given its ongoing struggles, and there's a significant risk that it could nosedive afterwards. This is a stock I'd stay far away from today.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.