The Good News Doesn’t Outweigh the Bad News for Sundial Growers

Stock Market

Meme-stock traders set their sights on Canadian cannabis company Sundial Growers (NASDAQ:SNDL) earlier this year, driving SNDL stock to dizzying heights. That wave of enthusiasm, however, has come and gone.

marijuana stocks Hand gently holding rich soil for his marijuana plants

Source: Jetacom Autofocus / Shutterstock.com

Of course, it’s possible that the Reddit crowd will target Sundial again. Yet I wouldn’t advise investors to consider buying a stock in the hope of it  undergoing a social-media-fueled rally.

Instead, it’s better to closely examine the company’s financials. In the case of Sundial Growers, they represent a good-news, bad-news situation.

Admittedly, Sundial did mark a significant fiscal milestone recently. Whether that’s enough to warrant a long position in the stock is another matter entirely.

A Closer Look at SNDL Stock

It seems like ages ago, but at the beginning of February, SNDL stock shares were trading for around $1.20.

The next thing you know, Reddit and Robinhood traders turned their attention to Sundial Growers. And with little advance warning, Sundial’s share price soared to a 52-week high of $3.96 on Feb. 10.

The problem with meme stocks is that they’re subject to swift tumbles. That was the case for SNDL stock in April,  as it slid below $1.

As of today, the shares are trading at around 97 cents apiece.

Sure, that’s a cheap price, but remember the Warren Buffett saying (I’m paraphrasing here): Price is what you pay, but value is what you get.

So is SNDL stock a good value play now? The answer depends on your perspective – and which data points you choose to cherry-pick.

First, the Good News

In defense of the bulls, I’ll concede that Sundial Growers achieved a milestone during the first quarter.

As indicated in its Q1 financial and operational results, Sundial delivered positive quarterly EBITDA, excluding certain items, for the first time in the company’s history.

As a reminder, EBITDA means earnings before interest, taxes, depreciation and amortization. Informally, we can say that it’s a measure of a company’s profitability after various expenses have been taken out.

In Sundial’s corporate presentation, the company contrasted its Q1 adjusted EBIDTA of 3.3 million CAD against the loss of 5.6 million CAD recorded in the previous quarter.

Also encouraging is Sundial’s Q1 earnings from operations of 1.7 million CAD. That’s quite an improvement over the loss from operations of 32.7 million CAD recorded during the prior quarter.

On top of all that, the bulls can point to Sundial’s 1.08 billion CAD in unrestricted cash, marketable securities and long-term investments on hand – and no outstanding debt – as of May 7, 2021.

Here’s Where It Gets Problematic for Sundial

Before you back up the truck and start buying SNDL stock, please be advised that InvestorPlace contributor Dana Blankenhorn has some cautionary notes to share.

First, there’s this: “Over the last four quarters, Sundial has managed to lose over $230 million while generating sales of just $42.7 million” (referring to Canadian dollars).

To that, I’ll add that Sundial Growers reported a net loss of 134.4 million CAD last quarter.

Moreover, Blankenhorn cites two issues that could cause problems for cannabis growers generally and Sundial in particular.

First, marijuana remains a Schedule 1 drug in the U.S. -. Sundial stockholders can hold out hope for the laws to change, but it’s difficult to predict if and when that might happen.

Blankenhorn’s other point is that “buyers often prefer Dealer McDope to Corporate Pot.”

What he’s saying is that there’s still a thriving illegal marijuana market, even in U.S. states where cannabis is locally decriminalized.

The Bottom Line

Blankenhorn’s points are duly noted. Sundial Growers could face an uphill battle in selling its wares, at least in the U.S.

On the fiscal front, there’s good news to be cherry-picked, but Sundial’s financial losses over the last four quarters don’t inspire confidence.

Don’t get me wrong;  I’m not seeing a catastrophe here. Still, feel free to sit on the sidelines and adopt a wait-and-see strategy with SNDL stock.

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

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