Canadian cannabis group Sundial Growers (NASDAQ:SNDL) stock has been one of the top-performing names so far in 2021.
SNDL stock is up about 90% year-to-date (YTD). By comparison, the ETFMG Alternative Harvest ETF (NYSEARCA:MJ) is up 34%.
SNDL shares began the year around 50 cents. Then, in February they saw a multi-year high of $3.96, and are now hovering around 90 cents. Market capitalization (cap) stands at $1.78 billion.
Initial gains seen earlier in the year were in part as a result of the meme stock craze fueled by the Reddit WallStreetBets crowd. In addition, hopes for U.S. federal legalization of marijuana have provided tailwinds for a large number of cannabis stocks.
As the Canadian retail market is not large enough to accommodate all of these cannabis firms, companies like Sundial Growers need to see the U.S. federal market open up for their operations to grow.
Therefore, today, I’ll discuss whether investors could expect the rally in SNDL stock to continue especially in light of the Q1 results. Let’s take a look.
How Q1 Earnings Came for Sundial Growers
Alberta, Canada-based Sundial Growers produces and sells cannabis products for the medical and adult-use markets. In 2020, the company served 2.3 million customers. Its brand portfolio includes Top Leaf, Sundial Cannabis, Palmetto and Grasslands.
Many analysts wonder if a small-cap stock like Sundial Growers needs this many brands in a relatively small market. As the number of brands increases, a company typically incurs more costs in production, marketing, and sales.
Sundial Growers stock released first quarter 2021 results on May 11. Net revenue was 9.89 million CAD, down 29% year-over-year (YOY). Net loss was 134.45 million CAD, a decline of 254% versus a net loss of 37.95 million CAD in the same quarter previous year.
In other words, like most other cannabis firms, the company is not yet profitable.
During the quarter, SNDL sold 3,989 kilogram equivalents of marijuana. The amount marked a decline of 45% decrease over the previous quarter when sales came at 7,247 kilogram equivalents.
Investors were not pleased with the drop in sales.
Regular InvestorPlace.com readers would likely know that over the past several months management has aggressively sold SNDL shares and raised cash. As a result, at the end of the quarter, cash and equivalents stood at 873.45 million CAD. The company also has no debt.
Although the cash level looks good on paper, we have to remember that management’s actions have diluted shareholders’ ownership significantly. The Street would like to see Sundial put this money to productive use and create more revenue.
“We continue to maintain our focus on keeping our employees safe and adjusting to market demands,” CEO Zach George said of the results. “Sundial remains confident that we have the right team, a strong balance sheet, and a world-class facility that will allow us to get through the pandemic, while focusing on growth.”
SNDL stock’s price-to-sales (P/S) and price-to-book (P/B) ratios stand at 11.37 and 2.07, respectively. If you are an investor who also follows technical charts, you might want to know that there is resistance at the $1.0 level.
Therefore, the shares would need considerable good news to have a sustained rally above this level.
The Bottom Line on SNDL Stock
Despite the eye-popping rally in SNDL stock in 2021, Sundial’s marijuana revenues have been falling. Given the recent financial performance and valuation metrics, it would be difficult to expect another bullish leg to start in SNDL stock any time soon.
In other words, Sundial Growers stock is a high-risk, high-reward investment that would not be appropriate for all portfolios.
Buy-and-hold investors who believe in the growth of the marijuana industry in the coming quarters could also consider buying an exchange-traded fund (ETF). In addition to the MJ ETF I’ve already mentioned, other examples would include:
AdvisorShares Pure Cannabis (NYSEARCA:YOLO) – up 19% YTD;
Amplify Seymour Cannabis (NYSEARCA:CNBS) – up 41 YTD;
Global X Cannabis ETF (NASDAQ:POTX) – up 28 YTD;
The Cannabis ETF (NYSEARCA:THCX) – up 29% YTD.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.