If my headline confuses you, then you’re probably thinking clearly about Sundial Growers (NASDAQ:SNDL). The cannabis stock has been the target of attention from retail investors. SNDL stock has charged ahead 180% after getting the GameStop (NYSE:GME) treatment. But the stock has fallen about 50% from its early February high. At one point, the stock was up over 430% for the year.
Before you immediately assume that this is a bearish article about Sundial, reconsider my headline. The simple fact about Sundial is that the stock is likely over its skis right now. But that doesn’t mean there’s no reason for optimism.
At the same time, cannabis stocks remain highly speculative investments. And if you have a speculative itch to scratch, there are better options in the sector, particularly if you believe that the U.S. market may be open for business.
See what I did there? You could be bullish; you could be bearish. Either position could be right. And with the stock about halfway between its 2021 high and low, now is the time to decide.
Earnings Were Less Bad
After an earnings report that falls into the “less bad” category, SNDL stock saw a brief spike. But since then, the stock has given up those gains.
Revenue was up 8% from the prior quarter, but it was down over 5% year over year (YOY). This continues the ongoing narrative that cannabis in general did not get the bump that investors expected during the pandemic. And on a YOY basis, Sundial has cut its net loss by more than 50%.
For bullish investors these results may lend support to the idea that the company’s shift from wholesale to branded retail sales is starting to pay off. However, even Sundial’s CEO Zach George says much more work needs to be done in order for the company to bring its revenue in line with past levels.
The Bulls Would Say…
The cannabis sector, and in particular cannabis ETFs, are doing very well in 2021. And Sundial has used the recent run-up in its stock price to shore up its balance sheet. Furthermore the company is shifting its portfolio to focus on higher-end products (e.g. inhalables).
And the Canadian market appears to finally be in full recovery mode.
The Bears Would Say…
I know, fundamentals are so 2019. But investors should note that the company has what amounts to a fully diluted market cap of over $2 billion. And the company’s trailing 12-month revenue is likely to be around $55 million. This goes to show that the Canadian market remains unpredictable…and unprofitable. And if investors shift their attention towards the United States there are simply better options.
First of all, investors may be starting to come to grips that legalizing marijuana may not be at the top of the Biden administration’s agenda. And with a political class that is in non-stop election mode, every day that Congress does not advance legislation is one day closer to an election that could change the political will.
That leaves it up to the individual states. That is going well. But there are multi-state operators such as Curaleaf (OTC:CURLF)that are showing growing revenue and a proven distribution system in the United States.
The Analysts Say SNDL Stock Going Down
Only four analysts have issued ratings and price targets for Sundial Growers. That’s not a large sample. But when the company gets two sell ratings and two hold ratings, it's not encouraging news. With the importance of access in an information age, analysts rarely issue sell ratings. So for Sundial to have two sell ratings is telling. This is particularly true since a hold rating is often viewed by many investors as a sell.
But that simply allows me to end this article where it began. Buying into Sundial Growers will require patience and conviction. Barring another “stimulus” from the retail crowd, SNDL stock will have to sink or swim on its own merits. And that looks like it will be tough sledding since, with earnings behind it, the company will have nothing to whet the appetite of investors.
However, if the stock goes down that may very well present a better buying opportunity.Leave a comment