Let’s get something out of the way upfront: Sundial Growers (NASDAQ:SNDL) stock isn’t cheap. It may look cheap, but it’s not.

A price under $1 doesn’t make SNDL stock cheap. There are now over 1.6 billion shares outstanding, which means the company still has a market capitalization in the range of $1.5 billion.

That’s a big figure for a still-unprofitable company, particularly when considering Sundial’s revenue base.

A 79% decline from February highs doesn’t make SNDL stock cheap, either. That rally clearly was driven by Reddit traders. And while Redditors (at least the early ones) were dead right on GameStop (NYSE:GME), few of the other spikes driven by retail traders have made much sense.

SNDL was, and is, no exception. At February highs just shy of $4, the business was being valued at some $6 billion. That was, and is, insane.

To be clear, this is not to say that there’s no bull case for SNDL stock. There is. In fact, I made that case at the end of last year and again in January. Sundial has turnaround potential and a massive cash pile thanks to stock sales this year.

Rather, the point is that the case has to be made at the right price. While 85 cents might sound like the right price, I don’t believe it is.

The Case for SNDL Stock

Again, there is a case for Sundial Growers. It’s not a perfect case — but it’s a case that in fact has improved so far in 2021.

Like a lot of cannabis stocks at the moment, SNDL is a turnaround play. It overshot in building out its manufacturing capacity for demand that didn’t materialize and blew up its balance sheet in the process.

The company is fixing both problems. It’s focusing on branded inhalable retail sales and foregoing the still-oversupplied wholesale channel. To retire a concerning amount of debt, the company sold its United Kingdom business, exchanged stock for notes and then sold stock.

In fact, so far in 2021, the company has sold a staggering amount of stock. Per the fourth quarter conference call last month, Sundial has issued 741 million shares for gross proceeds of $557 million.

Any worries about the balance sheet thus are gone. In fact, Sundial has plenty of dry powder to drive growth.

It obviously can make an acquisition of a reasonable size, but it also can aggressively invest in its business. Indeed, it did so starting in the fourth quarter, with sales and marketing expenses more than doubling from Q3 (albeit to just a little more than $1.8 million).

That spending is backing Sundial’s branded options — which had a strong 2020. Branded sales more than quadrupled. Obviously, the timing of Canadian cannabis rollouts were a key factor, but it does seem as if Sundial’s strategy of multiple brands across multiple price points is having some early success.

Certainly, there’s still work to do, but there is plenty of reason for optimism as well.

The Valuation Problem

That said, a lot of optimism remains priced in.

After all, SNDL might be down big from February highs — but it still posted a monster rally. Shares are up 79% so far this year. They’ve gained 460% since Oct. 30.

And, again, the market capitalization sits at $1.5 billion. Back out the $575 million in cash held at March 15 and the value applied to the operating business (known as enterprise value) still approaches a billion dollars.

That’s about 17x net revenue for 2020, still a big multiple. Sundial remains unprofitable and a long way from breakeven. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss in 2020 was more than 40% of net revenue. The figure actually got worse between Q3 and Q4.

Again, SNDL stock is not cheap.

Better Choices Elsewhere?

Honestly, 17x revenue doesn’t sound like a huge multiple for this market. In fact, it’s not terribly unreasonable by the standards of the cannabis sector.

That itself isn’t necessarily a good thing. Most cannabis stocks have rallied sharply in 2021, with the ETFMG Alternative Harvest ETF (NYSEARCA:MJ) up 47% so far this year. The entire industry has valuation concerns, particularly for investors (myself included) who think the optimism toward U.S. federal legalization remains somewhat overdone.

SNDL has another problem. Investors willing to still pay up for cannabis stocks can find other options.

Industry leader Canopy Growth (NASDAQ:CGC) isn’t much more expensive. The same cost-cutting/improvement thesis applies to the pending merger between Aphria (NASDAQ:APHA) and Tilray (NASDAQ:TLRY).

The cash on the balance sheet? Cronos (NASDAQ:CRON) has much more, and its management team has been on point from jump in seeing the risks of overcapacity. Sundial’s leadership can’t say the same thing (though the executive ranks have seen significant turnover).

Even with the pullback from February highs, it’s difficult to see exactly what makes SNDL stock stand out. Reddit seems to have lost interest given the stock’s fade since February.

Any “short squeeze” thesis was thin to begin with, as short interest didn’t really pick up until the stock did. With short interest less than average daily volume, a true squeeze seems unlikely. Other positive attributes are shared by other cannabis stocks.

Without a cheaper price, there isn’t enough here. Add in an ugly-looking chart and investors would do well to wait.

On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.