Sundial Growers (NASDAQ:SNDL) is a stock that has been on the move of late. Since hitting an intra-day low around 92 cents per share on March 5, shares of SNDL stock have steadily climbed higher. In recent days, the company’s share price has breached the $1.50 level and appears to be hurtling toward a two-bagger in less than a couple weeks.
Momentum is back, baby!
Let’s dive into whether this momentum can continue, and what’s driving these moves.
New Joint Venture Fueling SPAC Speculation on SNDL Stock
On Monday, shares shot dramatically higher on news that Sundial was forming a 50-50 joint venture with SAF Group.
Joint ventures really aren’t that exciting in general. However, given the meme status of this stock and its allure with the Reddit r/WallStreetBets group, chatter that this joint venture could lead to the potential for a Canadian special purpose acquisition company (SPAC) poured gasoline on a fire that’s already very hot.
SNDL stock has already cracked the top 5 most heavily traded stocks on Robinhood. Indeed, retail investors feel that the future is bright with Sundial, and are willing to put their “YOLO” money to work on this small cannabis grower.
As a small cannabis player, Sundial has remained unprofitable, which is unsurprising news to investors. However, after flirting with bankruptcy and avoiding de-listing recently due to a sharp retail-driven spike in its share price, SNDL stock has a new lease on life. The company has been able to raise a boatload of money in equity markets, recently tapping the market on Feb. 2 for $75 million. The proceeds from this sale will add to an already impressive war chest of over $600 million.
This money, combined with SAF’s “private equity and credit investment expertise on a global scale,” certainly invites investor imaginations to run wild. Indeed, there’s a lot to like about a company that is now debt-free, has a ton of cash to work with, and will be vying for U.S. market share shortly (if and when Federal legalization takes hold).
The SPAC market is wild right now, and there’s no telling what price investors would be willing to pay for a meme SPAC!
Earnings Optimism Playing Into Gains for SNDL Stock
Tomorrow, Wednesday March 17, Sundial will report its Q4 and full-year results. Indeed, this is likely to be a big day in terms of volatility for SNDL stock. Accordingly, I expect investors will be paying very close attention to how the company has performed to date.
The fact is, Sundial is a very small company in terms of revenue (only around 76 million CAD in revenue last year). However, investors piling into this trade have awarded SNDL stock a valuation of $2.7 billion at the time of writing.
That translates into a price-sales ratio of close to 50.
In other words, this is a perfectly priced stock. Everything needs to go right for this stock to continue its parabolic climb, and investors will be scouring the financial results like a prize dog at a dog show.
One of the key focal points for investors this time around will be on the company’s share count. The equity raises which have afforded the company a massive war chest have also been highly dilutive. Accordingly, the company’s share count has been estimated to have approximately doubled from December through February.
It’s expected that due to these equity raises, as well as debt-to-equity swaps and warrants that are now in the money, the company’s share count could be dramatically higher than what is reported. We won’t know until the veil is lifted tomorrow how this girl looks. So stay tuned.
Conclusion
I’m of the belief that SNDL stock is simply too hot to hold onto right now. There’s a ton of short-term momentum and volatility built into this name. Indeed, this stock is likely a trader’s best friend right now. However, for long-term investors, this is a recipe for danger, considering how close the company came to folding not that long ago. (As priced in by the market via the company’s plummeting share price).
Those looking to gamble, feel free to do so. But at this valuation, this isn’t an investable stock right now for conservative, long-term investors.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
