There’s an awful lot to unpack if you’re going to analyze Sundial Growers (NASDAQ:SNDL) and consider buying SNDL stock. From short squeezes to cannabis-market tailwinds, the factors to weigh are numerous and complex.
I’m sure to miss some of the developments and nuances, but at least I’ll try to provide an overview of what’s going on with SNDL stock and why traders are getting whipsawed so violently.
It’s really amazing to consider that Sundial Growers was a tiny cannabis company that hardly anyone was talking about just a few months ago. Perhaps that’s why it was an ideal short-squeeze target for Reddit group r/WallStreetBets.
Now that it’s on the trading community’s radar, it’s a good time to take a step back – and take a deep breath – as we dial in on what’s happened lately with SNDL stock.
Before the Squeeze
Over the long term, there’s no denying that SNDL stock has declined quite a bit. At one point in 2019, the stock was worth $11.50 per share.
Before the end of that year, however, SNDL would become a penny stock — defined by the U.S. Securities and Exchange Commission (SEC) as a stock that trades under $5 per share.
Things didn’t get any better in early 2020. During that time, SNDL stock struggled as investors were largely disappointed with “Cannabis 2.0,” or the decriminalized rollout of the Canadian cannabis derivatives market.
On top of that, there was the onset of the novel coronavirus. By mid-March of 2020, SNDL stock had fallen below the crucial $1 level.
With that came a potential threat of delisting from the Nasdaq Exchange. That exchange has been known to delist stocks sometimes if they trade below $1 per share for an extended period of time.
Things were looking pretty bleak for the SNDL stock bulls on Oct. 30. Even spookier than Halloween was the fact that SNDL shares were trading at a 52-week low of around 14 cents.
SNDL Stock Gets a Retail Boost
A number of Reddit users at r/WallStreetBets, meanwhile, were evidently preparing to squeeze some short sellers out of their positions.
In a classic yet modern David-versus-Goliath story, some r/WallStreetBets users helped to push GameStop (NYSE:GME) stock to dazzling heights.
With that, they effectively beat institutional-grade short sellers like Citron Research and Melvin Capital at their own game. As it turns out, however, r/WallStreetBets wasn’t done yet.
The subreddit group soon set its sights on other stocks, including SNDL stock. By early February, the share price had reached $1.20. So, at least the threat of Nasdaq delisting appeared to have been averted for the time being.
This is not to suggest that the retail short squeeze was SNDL stock’s sole catalyst. The newly installed Biden administration seems to be cannabis-market-friendly, so that could have been a contributing factor as well.
The Analysts Aren’t Impressed
Still, it’s plausible that the short squeeze has been the primary driver of higher share prices in SNDL stock lately.
For the most part, Wall Street analysts tend to focus on company fundamentals over Reddit-fueled hype when issuing outlooks on stocks.
And, those analysts generally seem unimpressed with SNDL stock’s future growth prospects. Alarmingly, Wall Street’s consensus one-year price target for SNDL is just $2.44.
Perhaps the analysts are concerned that Sundial may be taking measures to stave off bankruptcy. Specifically, the company recently disclosed a registered offering of 60.5 million Series A units as well as 14 million Series B units.
It might be encouraging that Sundial is expected take in proceeds of $74.5 million from the offering. Yet, share-price dilution is a major concern.
Beyond the potential for dilution, Wall Street is likely concerned that Biden-administration reforms won’t be able to save Sundial from eventual bankruptcy. Furthermore, the short-squeeze hype won’t likely last forever.
The Bottom Line
SNDL stock might have avoided a Nasdaq delisting threat, for now at least. Plus, it’s fascinating to witness such a remarkable short squeeze.
Nevertheless, Wall Street’s concerns ought to be taken seriously by retail investors. Perhaps it’s best to wait for the SNDL stock price to come down before re-evaluating its growth prospects.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.