It’s fair to say that there’s been a buildup of pessimism around Canadian cannabis company Sundial Growers (NASDAQ:SNDL). Lately, it’s become increasingly difficult to find financial commentators with a positive outlook on SNDL stock.
I don’t mind bucking the trend and leaning bullish on Sundial Growers. On March 23, I even went so far as to assert that the critics and short sellers would regret their positions.
Granted, SNDL stock declined after I issued that prediction. Nevertheless, today I’m going to double down on my bullish stance.
If the stock was good at nearly $4, it should be terrific around $1. Could I be wrong about that? Of course, but the risk-to-reward profile seems even better now.
A Closer Look at SNDL Stock
As of the afternoon of April 14, 2021, SNDL trades around 90 cents. That’s quite a decline from the 52-week high price of $3.96 printed on Feb. 10.
In February, some folks were calling it a Robinhood stock, or a Reddit stock. That’s because the stock was heavily traded among retail traders, and because it was the topic of conversation among some users of r/WallStreetBets.
Admittedly, SNDL stock went too high, too fast. On the other hand, buyers proved that they’re capable of bidding the share price up to the $4 area.
At the very least, we can say that the first-quarter 2021 hype phase has passed and the company’s financial will matter more now – and as we’ll see, Sundial’s not doing too badly in that regard.
In any case, it should be said that this is not a stock that anybody should “load the boat” on. That’s probably true for any cannabis stock, but a $1 pot stock can be particularly prone to volatility.
There’s sometimes a misconception among investors that cannabis companies are money-losing ventures.
That’s an unfair assessment, and Sundial’s recently reported fourth-quarter 2020 fiscal data show that there’s (pardon the pun) plenty of green to be made in the legal cannabis trade.
Let’s break down that fiscal fourth quarter. During that time, Sundial’s net revenues totaled $13.9 million. That’s an improvement of 8% over the third quarter’s $12.9 million.
Moreover, the company’s gross revenues increased quarter-over-quarter by 10%, while Sundial’s gross margins improved by a very impressive 23%.
What interested me the most was the company’s fourth-quarter gross revenues from vape cartridge sales. That number totaled $4.3 million and represented a 19% increase over the previous quarter.
So clearly, the vaping market is alive and well – or at least, Sundial’s been able to capitalize on it.
On top of all that, Sundial took in gross revenues of $11.9 million from dried flower sales during the fourth quarter, and that signifies a 3% increase compared to the prior quarter.
Slashing Debt, Reducing Expenditures
Considering the figures we just looked at, anyone who truly believes that revenues are important should wonder if the sell-off in SNDL stock might be overdone at this point.
Yet, as important as revenue generation is, another crucial consideration is the company’s willingness to reduce debt and cut costs.
Fortunately, when looking back over his company’s accomplishments in 2020, Sundial CEO Zach George offered some encouraging news on that particular topic:
“We successfully restructured the entire organization by repaying all outstanding debt, improving our operating practices, targeting a sustainable cost structure and a simplified business model. Sundial also curtailed production and reduced the size of our workforce in response to market demand.”
It’s heartbreaking to hear about workers losing their jobs, but investors should appreciate what Sundial is doing here.
With these expenditure-reduction measures, Sundial is firming up its capital position for the long term.
Let’s drill down on some numbers here. In 2020, the company eliminated $227 million in its aggregate principal amount of debt.
Furthermore, Sundial Growers ended up with $60.4 million in unrestricted cash on hand at the end of 2020, and $719 million in unrestricted cash on hand as of March 15, 2021.
The Bottom Line
If SNDL stock is unloved by many traders and commentators, I’m okay with that. In fact, the share-price beatdown could prove to be a ripe buying opportunity.
And with the company reporting strong revenue-generation improvement and slashing its debt while keeping costs low, the bull thesis for Sundial Growers is, indeed, growing.
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.