In the case of Sundial Growers (NASDAQ:SNDL) stock, it’s clear that one force is keeping its price higher than it ought to be. That force is meme stock traders and their short interest in Sundial Growers’ shares.
Otherwise, from a fundamental perspective, share prices would very likely be significantly lower now than their already low 92 cent levels.
Short Interest
Short interest in Sundial Growers currently stands at 24.62%. In general, levels above 20% suggest that a short squeeze could be affected. All of the movement that such activity causes, serves to bolster share prices.
That is very likely what’s currently occurring with SNDL stock. And that is one reason current investors are getting less than they bargain for when purchasing shares.
InvestorPlace’s Mark Hake recently ran the numbers, coming to the conclusion that the best case scenario indicates you should be willing to pay 57 cents per share, not 92.
I know that r/WallStreetBets pundits don’t care much for pure quantitative analysis. And it’s easily arguable that quantitative valuations rarely bear out perfectly in the emotion driven marketplace. No argument there, stocks are less than an exact science. But my contention is this: Pitting the analytical rigor of running numbers, as Mark Hake has done, against meme stock thought processes for long and numbers talk.
I’m willing to bet meme stock people know this on some level. And sooner or later the hammer will drop and Sundial Growers will move to its rightful, lower price.
Nevertheless, the stock remains artificially propped up beyond where it would otherwise be. Nothing has really happened for Sundial Growers in the past month. The last news out of the company happened on May 11 when it released earnings. Those earnings were, as you might have guessed, less than stellar.
Earnings Disappointed
It actually may be unfair to assert that Sundial Growers’ most recent earnings release disappointed. It was pretty much par for the course. Not only for the company, but for the vast majority of the cannabis sector at large. Losses continue to mount, and profitability remains a distant hope somewhere on the horizon.
But the truth is that the company’s troubles continue from quarter to quarter and from year to year.
When I wrote about Sundial Growers last month, I noted: “Sundial Growers recorded a net loss of $134.445 million in the first three months of 2021. That’s more than double the $64.144 million it lost in the previous quarter. Perhaps you agree that it’s somewhat unfair to compare Q4 and Q1. After all, businesses face cyclicality and it’s only right to compare apples to apples. But even in that case, the results are the same, and remain discouraging. In Q1 of 2020, Sundial Growers posted a net loss of $37.949 million which ballooned to $134.445 million a year later.”
Bottom Line
The point here is that there’s little to suggest that it’s a wise decision to establish a position in SNDL stock now. There’s also little news coming out of the company. And the company itself has stated that it won’t give any updates on its recent Inner Spirit Holdings and Spiritleaf acquisition until later in the year.
In the earnings transcript of the latest earnings report, CEO Zach George, upon being asked for the rationale behind the acquisition, said “we’ll be providing a very fulsome update closer to the time of close which as we said is early in Q3.”
Basically investors will have to wait until the next earnings release to get any clarity on Sundial Growers. I’d say there’s little to suggest room for optimism on that front. The company, and the industry continue to mature but also continue to disappoint.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
