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2 Reasons To Avoid Tilray

Over the last couple months, I’ve shown you stocks to avoid so you can protect your investment…

… Stocks to consider buying to earn higher investment returns in these uncertain times…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find great stocks to invest in during this pandemic.

Doing both will help you build your wealth.

Combine this with dividends and you’re well on your way to building a retirement account you can live off.

But most only think of investing well. Not avoiding bad investments.

Because of this, today I want to show you 2 Reasons To Avoid Tilray.

2 Reasons To Avoid Popular Cannabis Stock Tilray 

  1. It’s Got A Lot of Debt

As of the most recent quarter Tilray’s (TLRY) balance sheet is made up of 84.6% total liabilities.  And its debt to equity ratio is 3.87.

I want to invest in safe stocks that will be around for decades to come to help me build wealth over the long term.

Typically, this means I invest in companies that have little to no debt compared to their cash and equity.  For example, I like to invest in stocks that have debt to equity ratios below 1.

Its debt to equity ratio of 3.87 may not seem important… But let me put this into some context for you.

As of this writing, Tilray’s current market cap is $687 million.

And it has total short and long term debt of $510 million.

Its debt makes up 74.2% of its market cap right now.

As of this writing, Tilray has a negative 13.23 interest coverage ratio… Meaning it’s not earning enough profits to cover the interest payments on its debt.

And when this happens a company either must issue more debt or shares to generate cash to make these payments… Or it goes bankrupt.

To make this even worse its burning through cash fast and is unprofitable…

2. It’s Not Profitable

In the most recent quarterly data Tilray was unprofitable on an operating income, net income, and free cash flow basis.  

Its operating profitability margin in the trailing twelve months (TTM) is negative 121.3%.

Its net income profitability margin in the TTM period was negative 141.7%.

And its free cash flow to sales (FCF/Sales) margin in this same time was negative 158.5%.

EDITOR’s NOTE – Trailing twelve months just means the last 12 months consecutively.

You want these numbers to be as high as possible on the positive side because that means the company is generating profits and cash flow from its operations.

For example, I look for companies to have operating and net profit margins above 10% on a consistent basis.

And I look for stocks FCF/sales margins above 5% on a consistent basis.

Why these numbers?

Because after evaluating thousands of companies over the last 13+ years of my career I estimate fewer than 5% of all companies in the world produce consistent operating profit and net margins above 10% over long periods of time.

And far fewer than 5% of all companies produce FCF/sales margins than 5% on a consistent basis too.

When a company surpasses these thresholds, it means the company is a great operating business.

And these profits allow the company to reinvest in and grow its businesses in a healthy way.

But if a company doesn’t surpass these thresholds – like Tilray – this leads the company to have less money to reinvest in the business to continue competing well.

Which is where Tilray finds itself due to its unprofitability.

Combine this unprofitability with its large and increasing debt load and Tilray is in trouble and you should avoid investing in its stock to protect your portfolio.

Use the following links to some of our recent articles to learn other ways to protect your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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