Up Around 40% in Just the Past Month, Could This Red-Hot Growth Stock Rally Even Higher?

Key Points

• Tilray's stock has been rallying since the start of July despite an absence of significant news.

• Investors have often bought the stock on hopes that the U.S. marijuana market will open up.

• However, that doesn't appear to be on the horizon, and Tilray faces many challenges ahead.

• 10 stocks we like better than Tilray Brands ›

The S&P 500 index has been hitting record highs and may be running out of room to rise a whole lot more. For investors, now may be an opportune time to pay attention to stocks which may be poised for greater gains and which haven't been doing particularly well.

One notable stock of late has been Tilray Brands (NASDAQ: TLRY), which has a diverse business centering around cannabis and beverages. While it hasn't been a strong buy at all this year (it's down more than 50% year to date), it has been picking up steam of late. As of Friday, it was up around 40% in the past month.

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Could this struggling stock be on track for an even bigger rally ahead, or could this be just a short-lived bump-up in value?

Image source: Getty Images.

What's the reason behind Tilray's recent rally?

The big reason to invest into Tilray is if you're bullish on marijuana legalization in the U.S. If that happens, the Canadian-based cannabis producer would have a way to enter a huge, lucrative market, enabling it to drastically grow its sales. But with nothing seemingly happening on that front of late, growth investors have, for the most part, avoided it.

As of the end of June, the stock was down a whopping 69% as it looked poised for yet another disastrous year. In 2024, the pot stock fell by more than 40% after declining by nearly 15% the year before that.

But in the first few days of July, Tilray's stock started to rally. And on July 9 it hit an intra-day high of $0.70 -- levels it hadn't hit since March. The company, however, hasn't released any major news of late, and its latest quarterly report isn't coming out until later this month, on July 28.

Investors buying Tilray may simply have been pivoting to cheaper stocks, especially with the markets up around record levels and many top-performing stocks looking expensive. Tilray is also a popular stock with retail investors, and when its momentum picks up, for any reason, that can lead to a snowball effect.

Tilray has a lot of work to do to win over growth investors

The problem with Tilray is that it's struggling to find ways to grow its business in a sustainable way. It's leaned on acquisitions of craft brewers in the past as a way to expand its operations. But acquisitions often lead to just temporary, short-term boosts. Tilray's sales growth rate has been underwhelming of late. For the period ended Feb. 28, its net revenue totaled $186 million and was down more than 1% year over year.

Without a U.S. cannabis market to tap into right now, and the company incurring a net loss of more than $913 million over the past three quarters, there isn't an overwhelming reason for investors to want to take a chance on the stock, even if it may look cheap.

Tilray is a speculative buy, at best

Tilray's stock got a boost recently despite no significant developments. That's a sign of just how dangerously speculative and unpredictable the stock can be. While it may be tempting to buy into a stock that's suddenly taking off, this type of rally usually doesn't end up being sustainable.

Consider that over the past five years, shares of Tilray have fallen an incredible 93%. Although there may be brief spikes along the way, it's been an incredibly strong, downward trend for the stock. And without a reason to expect that things will get better for Tilray anytime soon, investors may still be better off steering clear of this highly risky and volatile stock.

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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.