I’ve written quite a few articles for InvestorPlace in which I’ve argued that a successful company doesn’t always equate to a promising stock. It’s crucial for investors to understand the power of market forces — and the influence of institutional investors. Case in point? Tilray (NASDAQ:TLRY). Fact of the matter is that TLRY stock is suffering as a consequence of market forces rather than resembling the progress it has made as a company.

This firm has expanded into various markets and completed numerous key acquisitions over the past year. That makes it difficult to understand why the stock has lost more than 70% of its value during the same time. However, there’s a simple explanation for this. And unfortunately, I don’t see the tides turning in Tilray’s favor anytime soon.

Here’s what you should know about TLRY stock.

TLRY Stock: Recent Developments

There’s no denying that Tilray’s growth as a company has gone from strength to strength in the past few years. Recently, the firm reported that it expanded its operations in Australia with a range of new medicinal product offerings approved by the Therapeutic Goods Administration (TGA). In addition to the development of its product range, Tilray has also integrated a new e-learning platform. The platform enables Australian healthcare providers to enhance their knowledge on the framework of medicinal cannabis.

According to George Polimenakos, General Manager for Tilray Australia, integrating information in the medical set-up is a significant value-add for medical professionals, cannabis producers and patients. Polimenakos noted the following:

“Cannabis education is paramount to everything we do and [we] are therefore excited to offer healthcare professionals with the tools they need to learn about cannabis through our new e-learning platform.”

The expansion of this brand’s footprint in Australia is only one of many recent developments. There’s no doubting that Tilray’s growth trajectory remains robust. Still, it doesn’t seem as though it’s enough for potential TLRY stock investors, considering the current market conditions. This provides a very interesting juxtaposition in my view.

Why the Market’s Attitude Is Ex-Tilray

TLRY stock is facing market headwinds more than anything else. Really, investors need to understand that cyclical market forces are often more of an influence than the underlying company’s progress. The reason for this is due to the homogenous mindset of institutional investors when it comes to market-timing concepts.

To illustrate this in the best way possible, let’s take a look at a broadly used pricing model in the market, the Fama and French 5-factor model. This model uses a stock’s sensitivity to five market environments. These include momentum, value, market capitalization, quality and the risk premium in relation to the 10-year treasury yield.

Right now, the market is emphasizing the quality and value aspects of this model. Why? Because the long-lasted bull run in growth stocks has caused the broad-based equity sphere to be overvalued. In other words, institutional investors are cherry-picking because they believe investor liquidity will be dampened due to cash demands amid rising inflation. Thus, overpriced growth picks like TLRY stock will likely suffer as a consequence.

But let’s return to quality and value for a second. The quality factor emphasizes companies that have robust earnings relative to investors’ equity and the company’s assets, solid balance sheets and strong cash flows. The value factor narrows things down to the price-earnings (P/E) ratio. Other metrics like price-sales (P/S) and price-cash flow are also often considered.

If we do a deeper dive into Tilray’s current metrics, it’s clear that the stock trades at a negative return on equity and assets. This suggests that the quality aspect of TLRY stock is lacking. Furthermore, its P/E ratio is trading at a premium of more than two times the S&P 500’s P/E. That conveys that the stock isn’t priced correctly — and that we could see more downward mean reversion in 2022.

What’s Next for Tilray

Investors need to be really careful here. Sure, it may seem trivial to re-invest in a stock that has lost much of its value. However, history shows it could get a lot worse. TLRY stock is trading below its 50-, 100- and 200-day moving averages and there’s nothing to support a turnaround if you look at the current market.

Based on market forces in relation to the macroeconomic environment, I see more obstacles ahead for Tilray.

On the date of publication, Steve Booyens did not hold (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa, and his articles are published on various reputable web pages such as Seeking Alpha, Benzinga, Gurufocus, and Yahoo Finance. Steve’s content for InvestorPlace includes stock recommendations, with occasional articles on crowdfunding, cryptocurrency, and ESG.