InvestorPlace’s Alex Sirois recently discussed seven stocks that he thought would benefit from a Reddit-induced short squeeze. One of the names on his list was Alberta-based cannabis producer Sundial Growers (NASDAQ:SNDL) stock.
Sirois argued SNDL stock would ride the wave of Canadian producers benefiting from Joe Biden’s kinder view of cannabis decriminalization.
I have to tell you; I admire my colleague’s courage. Some of these names are just awful.
Sundial, trading around $1, isn’t close to being one of the best Reddit stocks to own for a short squeeze, despite its cheaper-than-cheap share price.
Care to guess which one is? My bet is on Ontrak Inc. (NASDAQ:OTRK). Here’s why.
Forget SNDL Stock for Now
It might seem strange that after telling readers in mid-March that Sundial had a shot at $4 within the next 12-24 months, I’d turn around and tell you to forget about it.
That’s not consistent thinking. I agree.
However, my $4 price tag came with a big caveat: It couldn’t make a splashy acquisition. So far, it’s stayed away from the limelight, settling for a concentrates partnership it announced on April 6 with CanadaBis Capital Inc., another Alberta-based cannabis company.
The thing is, when I wrote about SNDL stock in mid-March, it was trading around 42% higher than its current share price. Long term, if it follows its plan to become a branded producer solely, I do think it’s got a shot.
But it’s got to stay out of the penalty box. This includes slowing its efforts to dilute the heck out of existing shareholders just because it can. It’s got plenty of cash to make things happen. It doesn’t need $800 million more.
So, for now, let’s consider Ontrak as a possible alternative. You don’t have to buy it. Just humor me while I consider its positives.
Financials Aren’t Too Shabby
First of all, if you’ve never heard of Ontrak, it’s a virtual healthcare company with a software platform that helps people with chronic diseases make better health and wellness choices.
PRE (Predict-Recommend-Engage) uses artificial intelligence and predictive analytics to deliver better health outcomes, thereby reducing healthcare costs for both the overall system and the patient.
Covid-19 brought telehealth and virtual medicine to the forefront. Investors can expect it to remain a big part of our healthcare treatment in the future.
In March, Ontrak reported Q4 2020 results that included a 149% increase in revenues to $29.3 million and an operating loss of $1.8 million, 74% less than a year earlier. In 2020, it had full-year revenue of $82.8 million, 136% higher year-over-year. On the bottom line, it had an operating loss of $14.9 million, 25% less than a year earlier.
While it’s yet to generate positive cash flow, it’s very close. In 2021, it expects annual revenues of $100 million, despite losing its largest customer. It will be fine.
A New CEO
On March 16, Ontrak announced that founder, CEO, and Chairman, Terren Peizer, moved out of the CEO role to become Executive Chairman. In his place as CEO will be former CVS Health (NYSE:CVS) Executive Vice President and Chief Transformation Officer (CTO), Jonathan Mayhew.
Mayhew was responsible for every aspect of the CVS Health business transformation taking place across the enterprise. Before that, he was responsible for Aetna’s U.S. Health Care Business, a unit with $52 billion in annual revenues and $4.3 billion in operating income.
With years of experience in the healthcare industry, Ontrak’s board has got themselves a proven winner to take it to the next level. Peizer owns 56.8% of Ontrak’s stock. He wouldn’t have moved aside if he didn’t think the move was in his best interest and the company.
In my books, it’s a sage move.
Year-to-date, OTRK stock is down 48% to $33. I like the odds of it returning to $60 or higher under Mayhew’s leadership by the end of 2021.
If I were into shorting stocks, OTRK wouldn’t be my first choice. Not by a long shot. The loss of $60 million in revenue will likely be considered chump-change in five years.
As for SNDL, I think the work it did to clean up its balance sheet makes it a far less attractive short candidate than it would have been a year ago. I’ll continue to watch both companies’ progress with interest.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities