The truth about this hot meme stock
Producers of sundials (NASDAQ:SNDL) remains one of the most controversial penny stocks. Sundial is a small, unprofitable cannabis company that trades just under a dollar a share. Normally, this kind of company can go unnoticed. But SNDL stock has become a strangely captivating battleground all year round.
Source: Postmodern Studio / Shutterstock.com
Last fall, SNDL stock was trading around 25 cents per share and generating huge operating losses. Analysts suggested the company faced a risk of bankruptcy. Things looked bleak.
Then the Reddit the traders have arrived. Given Sundial’s low stock price and large short position, it contracted easily and briefly hit $ 4 in February.
InvestorPlace – Stock News, Stock Tips & Trading Tips
The sundial is boxed in, but with massive dilution
The company took advantage of this acceleration to issue a gargantuan quantity of shares. So much so, in fact, that he paid off his debts and ended up with a billion dollars in excess cash. It was an incredible move.
However, Sundial also ended up with a huge amount of shares outstanding; it currently has over 1.6 billion shares outstanding. This means that it also has a market cap of $ 1.5 billion considering the current share price.
Traders also buy and sell over 200 million SNDL shares on average daily. It is an incredible amount. So don’t confuse the low stock price with a sign of good value or the fact that Sundial is a neglected stock.
Sundial’s low share price skews fundamentals
If Sundial did a large reverse split, it would lose much of its unique commercial appeal. For example, let’s compare this to another marijuana company Cronos (NASDAQ:CRON). Cronos, like Sundial, has struggled to generate much profitability or consistent business success.
Cronos has a market cap of $ 3.3 billion, roughly double that of Sundial. Additionally, Cronos also has 11% of the stocks sold short, so it would make sense to be a short squeeze target. Still, Cronos gets relatively little buzz on social media, and you can see it in the volume of transactions. Cronos trades an average of 1.5 million shares per day. That’s a pale shadow compared to Sundial’s 200 million daily share volume.
Why aren’t traders interested in CRON stocks? I would say this is because CRON stock sells for $ 9 per share, while SNDL stock only costs $ 1.
Yet the nominal share price doesn’t really matter when it comes to a company’s long-term fundamentals. If Sundial were to reverse 10: 1, it would keep exactly the same trading outlook, but now it would have a stock price of $ 10 instead of $ 1. At this point, would traders still prefer $ 10 of SNDL shares to $ 9 of CRON shares? In other words, meme marketers seem drawn to the sundial simply because it looks cheap. But, when you actually consider the huge amount of dilution, the appeal of the sundial wears off considerably.
The sundial tries to rotate
Sundial’s existing cannabis retail business has failed to launch as planned. The company encountered various operational issues and meeting consumer demand. It remains to be seen whether the current management team can resolve these structural issues or not.
However, with its enormous cash flow, Sundial is not just stuck with its struggling operations. As a sign of new direction, Sundial has invested heavily in a company that will fund the cannabis operations. This makes the company sort of a niche lender, which looks more promising than the company’s retail marijuana business.
Considering that Sundial has nearly 40 cents per share in cash, it seems odd that short sellers remain so obsessed with SNDL shares. The business isn’t going to zero anytime soon. Meanwhile, with its significant cash flow, Sundial could announce a transformative merger or acquisition and shake things up.
Sundial is a pretty lousy company judging by its past performance, there’s no question about it. But with a ton of money, that could change at any time if management comes up with something smart.
SNDL Stock Verdict
You can make a decent deal for sundial producers as a business. For a meme stock, the underlying fundamentals here aren’t bad. The company’s massive cash position in particular gives it a bunch of options that rival marijuana companies may not have.
That said, it does sound like an exercise in futility analyzing the fundamentals at this point. Because it will not be changes in the outlook for the business that will drive price action in the short term. Rather, the central question for the current outlook for SNDL stock is whether or not another short squeeze starts. And that’s more for the social media and Reddit crowd to determine than anything that’s going on in the marijuana industry or with Sundial in particular.
As such, the bottom line is that SNDL action is quite suitable for speculative dice roll. The company’s gigantic liquidity protects shareholders from too many short-term declines. For long-term investors, however, it’s probably best to wait for the energy of the meme to shift elsewhere so that the SNDL stock can start trading again based on its actual underlying value.
If nothing else, please look beyond the $ 1 share price. SNDL stock is not necessarily “cheap” just because it is a penny stock.
On Penny Stocks and Low-Volume Stocks: With rare exceptions, InvestorPlace does not post reviews on companies with a market capitalization of less than $ 100 million or that trade less than 100,000 shares each day. This is because these “penny stocks” are often the playground of crooks and market manipulators. If we ever post a comment on a low volume stock that may be affected by our comment, we require that InvestorPlace.comThe editors of s reveal this fact and warn readers of the risks.
Read more: Penny Stocks – How To Profit From It Without Getting Ripped Off
As of the publication date, Ian Bezek does not have (directly or indirectly) any position in any of the stocks mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Ian Bezek has written over 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a junior analyst for Kerrisdale Capital, a $ 300 million New York-based hedge fund. You can reach him on Twitter at @irbezek.
More from Place Investor
The Sundial Growers: The Truth About This Hot Meme Stock post first appeared on InvestorPlace.