A loss of 55.61% year to date for shares of Tilray, Inc. (TLRY) tells a story of big bearish trading activity accompanying the move. It's bearish activity because the shares are declining in price alongside an increase in volumes.

The main criteria we look for when betting on upside in a stock include improving fundamentals, leading technicals, and bullish trading activity in the shares … all of which Tilray is missing. I'll go into the fundamental picture later, but for us, the true tell on the near-term trajectory of a stock lies in its trading activity. This flies in the face of all of the hype surrounding the marijuana space. To us, following the big money is often more prudent.

Throughout 2019, Tilray shares have decreased in price alongside an increase in volume on many occasions. This can be indicative of smart money selling the shares. The bottom line here is that the manner in which a stock trades can sometimes alert you to the forward fundamental picture more so than simply looking at a company's financials alone.

For Mapsignals, the strongest indicator of negative price momentum is obtained by measuring potential institutional selling in the shares. In 2019, Tilray stock has logged 11 of these rare signals (see chart below). When we see continual bearish activity in a stock alongside troubling forward fundamentals, we take notice. This indicates that, over time, there is a lack of demand for the shares. This, plus a weakening fundamental outlook for the company, can lead to further declines in the stock price.

Just to show you graphically what our unusual trading activity signals look like, have a look at all of the unusual institutional (UI) signals Tilray has made over the past year. As you can see, the trend indicates low demand for shares starting in 2019. What we have found over time is that unusual trading signals tend to reoccur. You can see the string of red bars below, which highlight potential institutional selling:

Chart showing the unusual institutional (UI) signals made by Tilray, Inc. (TLRY)

Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by outsized unusual institutional trading activity. By studying these data points, we can make an educated guess as to which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks. The opposite is true when companies flag negative criteria. 

The following are three technical areas of concern for shares of Tilray:

  • YTD underperformance vs. market: -72.26% vs. SPDR S&P 500 ETF (SPY
  • YTD underperformance vs. pharmaceutical sector: -57.19% vs. SPDR S&P Pharmaceuticals ETF (XPH)
  • Bearish unusual trading signals

Now, we take it a step further and rank each stock showing this activity. Below you can see the historical times when Tilray stock made potential sell signals for Mapsignals over the past year. These are the lowest-rated signals in our stock universe. What jumps out is how long it took for these big sell signals to show on our bottom stock list. However, there was a point in April when something had clearly changed in our data, and since then, the stock has been in a very ugly downtrend:

Chart showing sell signals made by Tilray, Inc. (TLRY)

On top of a poor technical picture, one should also look under the hood to see if the fundamental picture supports a negative outlook for an investment. As you can see, Tilray has had a troubling fundamental picture by looking at the latest quarterly results:

  • Q2 2019 net loss was -$0.36 per share vs. -$0.17 per share in Q2 2018
  • Q2 2019 adjusted EBITDA loss was -$17.9 million vs. -$4.7 million in Q2 2018

Tilray is underperforming technically and lacks strong fundamentals. Likely more important, however, is the trend of big selling in 2019. Until this overall picture changes, Tilray shares should remain under pressure. The long-term story for the marijuana and cannabis industry is likely bright, but fighting the big trend of trading is a losing game.

The Bottom Line

Tilray stock does not meet the current criteria for a long investment. Given the weak earnings results and multiple sell signals, this stock should face headwinds until the fundamental and technical picture brightens. 

Disclosure: The author holds no position in Tilray at the time of publication.