Mixed Earnings Highlight Long-Term Issues for Sundial Growers


Sundial Growers (NASDAQ:SNDL) stock is a perplexing one to analyze.

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The mass-market Canadian marijuana producer has had a wild ride in the last six months, going from an afterthought to the most talked-about cannabis stock out there. But during this time, one question has vexed Sundial bulls.

Does the company have the ability to deliver strong earnings consistently?

After the latest earnings report, those questions still loom large over Sundial. Yes, there definitely was something to cheer for. Net loss improved marginally, and the company noted that it would have recorded positive net income without an asset impairment charge.

But the revenue numbers were disappointing once again, and the company reported negative EBITDA after posting a positive number in the last quarter.

If you combine these numbers with the fact that over 1 billion new shares have been issued in the past year, the company’s chances of producing a positive EPS figure are bleak.

Yet, bulls argue Sundial’s ascent makes sense. After all, the company is aggressively pursuing M&A activity, and its joint venture platform is targeting excellent opportunities in the cannabis space. Plus, with the amount of cash at its disposal, Sundial can snap up several companies in the Canadian space and enhance its already prominent position.

All well and good. But it still does not explain how the company will generate revenue growth. Tesla (NASDAQ:TSLA) manages to earn a fair bit from its Bitcoin (CCC:BTC-USD) investment, but its performance will be judged by how many electric cars it managed to sell at the end of the day. Similarly, the income earned by strategic investments is great. But investors want to see solid topline growth before committing more capital.

This is an area where SNDL stock has been found wanting.

Quarterly Results Highlight Areas for Improvement

Sundial recently reported a net loss of 52.3 million CAD for the second quarter of 2021, which compared favorably to the 60.4 million CAD loss recorded in the year-ago period. Sundial noted that without an asset impairment charge of 60 million CAD, the company would have recorded positive net income.

Revenue was 14.86 million CAD, which was more or less on par with 14.57 million CAD posted a year ago. Gross cannabis revenue of $12.7 million represents an increase of 8% sequentially. However, net revenue from its cannabis segment, 9.15 million CAD, fell short of approximately 9.43 million CAD consensus estimates.

ATM net proceeds for the second quarter came in at 327.4 million CAD. Sundial reported a negative EBITDA figure after posting a positive one in the prior quarter. After the end of the quarter, Sundial closed the acquisition of Inner Spirit Holdings and its Spiritleaf retail cannabis store network. The acquisition expands its footprint in the Canadian cannabis space.

Overall, the results were a mixed bag. Especially when you compare the situation to Tilray (NASDAQ:TLRY), which had an upbeat quarterly earnings report. Incidentally, this is the first earnings report after the blockbuster merger between the company and Aphria. The emerging entity is a big deal in the Canadian marijuana space. Needless to say, the numbers indicate Tilray is moving in the right direction.

Few Catalysts Remaining

Sundial operates in a news sensitive space. So, a positive or negative press release can have a big impact on the bottom line. Therefore, Sundial’s silence is concerning. The company, alongside the other Canadian cannabis space, seems to be waiting on the U.S. for further news on federal legalization. Any positive development will undoubtedly push SNDL stock upward, considering the extraordinary retail investor interest in the company.

But until then, there are a limited number of catalysts that can move the needle. That is the reason shares have been losing steam lately. The acquisition of Inner Spirit Holdings does give the company a larger footprint in Canada.

But that market has been ailing for a while and I don’t see a major turnaround soon. If you still have faith, though, you can purchase Tilray since it is in a much better position to exploit opportunities in that space.

SNDL Stock Is Not a Long-Term Investment

Most investors still holding SNDL stock are hoping for major events that could pop the price. As we move further away from the start of meme stock mania, the prospects of it happening become slim. Still, Redditors have shown time and again that they are a resilient group and have the ability to surprise you.

But as the recent financials show, there is a lot of legwork still to be done.

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On the publication date, Faizan Farooque 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.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. 

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