2021 could one day go down in investment history as the year of meme stocks. Several stocks have gone viral online in the past few months. Their popularity on the internet has resulted in huge profits.
AMC entertainment (NYSE: AMC) and Tilray (NASDAQ: TLRY) stand out as two very different meme stocks that have garnered a lot of attention this year. AMC was a short squeeze play a few months ago that has returned after a temporary lull. Its stocks are up more than 2,500% since the start of the year. Tilray enjoyed a big run up earlier this year as investors awaited the merger between the company and Aphria. The pot stock is still up nearly 190% after giving up some of its previous gains.
Which of these two meme stocks is a better choice for investors? This is how AMC and Tilray face each other.
AMC had revenue of $ 148.3 million in the first quarter of 2021, down 84% year over year. This is not surprising when you consider that the COVID-19 pandemic had devastating consequences for the cinema operator. It’s also no surprise that AMC posted a large net loss of more than $ 567 million in the first quarter. Even before the pandemic, AMC was not consistently making profits.
However, AMC has maintained a strong liquidity position thanks to several equity and debt increases. As of March 31, the company’s cash on hand was just over $ 813 million, excluding $ 29 million of locked cash. Since then, AMC has strengthened its liquidity position through additional stock offerings.
Tilray’s exact financial position is a little more difficult to pin down because of the Aphria merger. Both Aphria and Tilray saw year-over-year revenue growth in their most recent quarterly updates. Both companies also achieved positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).
Aphria’s cash and cash equivalents as of February 28, 2021 were CAD 267.1 million. Tilray had a cash position of $ 261.3 million in all-stock transactions as of February 16, 2021.
We cannot use earnings-based valuation metrics at AMC as it is not profitable at this point. However, the stock is currently trading at more than 20 times its last 12-month sales. Meanwhile, Tilray is trading a little over nine times after 12 month sales.
However, using a different metric gives AMC the advantage. Shares in the theater chain only trade at 0.18 times book value. Tilray’s price-to-book ratio is 6.7.
However, both valuation metrics have disadvantages. Historical sales used for trailing P / S multiples can be misleading. This is particularly the case with the COVID-19 pandemic, which affects both AMC and Tilray. The price-to-book ratio is also problematic due to the high level of goodwill that both companies have on their balance sheets.
Arguably the most important factor in choosing between these two stocks is their growth prospects. However, this is also the most difficult area to assess.
There’s no question that AMC should bounce back in 2021 and beyond. The stock could even have a big catalyst along the way if studios abandon their efforts to debut movies on streaming services in favor of only new movies in theaters.
Tilray could face significant challenges in the Canadian cannabis market this year due to price pressures. On the other hand, the lifting of pandemic restrictions could pave the way for stronger sales growth for the company’s cannabis products in Canada and Europe, as well as its hemp products in the United States
What do analysts think of the growth prospects for each of these companies? The advantage is clearly with Tilray. Analysts are forecasting average annual earnings growth of nearly 50% for Tilray, while anticipating deteriorating earnings for AMC after the next year.
Better meme stock?
In my opinion, AMC could still be the bigger winner in 2021. However, in the long run, I think Tilray’s chances are likely to be better.
In particular, I expect the U.S. cannabis market to open up to Canadian companies in the not too distant future. This will be a tremendous opportunity for Tilray.
The company already operates Manitoba Harvest, the largest producer of hemp foods with significant US sales. It also operates Sweetwater Brewing, a beer maker focused on cannabis lifestyle brands. Tilray believes these companies will provide him with a solid platform for the U.S. cannabis market.
While I nod my head to Tilray long-term, I think there are other stocks out there that offer better risk / reward ratios than Tilray or AMC. These stocks might not be internet memes, but they do have strong financial positions, attractive valuations, and great long-term growth prospects.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.