Sundial Growers (NASDAQ:SNDL) will release its upcoming Q3 earnings report on Nov. 11, after the market closes. Investors will be looking to see how well its revenue growth turns out. Depending on how well that goes, SNDL stock might have a chance of stopping its recent slide.
This is because the cannabis grower closed on its acquisition of Inner Spirit on July 20. Inner Spirit is a retailer and franchisor of Spiritleaf recreational cannabis stores across Canada. The deal essentially makes Sundial a vertically integrated cannabis grower and retailer.
It’s not like the market so far really cares about this. On the one hand, this year, SNDL stock has risen 37.1% from 47.4 cents per share on Dec. 31 to 65 cents as of Oct. 29. But on the other hand, the stock is down a great deal from around 81 cents on Aug. 3, a loss of 16 cents or 20 cents in almost 2 months.
That seems to imply that the market is not all that impressed with the Inner Spirit acquisition. So maybe the Nov. 11 earnings release will turn that perception around. Or not.
Recent events may lead to that conclusion.
Where Analysts Stand on Sundial Growers
Sometimes when I write an updated article on a stock I look at my previous article and see whether analyst projections that I used have changed. That is exactly what happened here.
On Sept. 20 I wrote an article on SNDL stock and essentially did a bottom-up, Sum-of-the-Parts (SOTP) analysis. But at the time, I based on my SOTP analysis on Seeking Alpha’s survey of analysts’ revenue forecasts for 2022. For example, I wrote that they “forecast sales of $45.2 million this year and $78.1 million next year.”
But now, it seems, analysts are not so sanguine about Sundial’s 2022 future revenue. Seeking Alpha now reports that 5 analysts project just $70.72 million for 2022.
That is a deep cut of 9% in future revenue in the space of just one month or so. In other words, they are not impressed with Inner Spirit.
To make a long story short, I valued SNDL stock at 55 cents per share. But that was at 5 times future sales. At 10 times, which is probably too high, its value was deemed to be 74 cents. So if we deduct 10% off of that higher value, its new valuation is 66.6 cents per share.
But that is where the stock is just about at today at 65 cents per share. In other words, there is no margin of safety here.
What to Do With SNDL Stock
The prudent approach would be to wait for the Q3 earnings report to see both the impact Inner Spirit had on Sundial’s revenue, as well as analysts’ future revenue forecasts.
Short of that, it also seems wise to wait for a margin of safety. So, for example, a margin of 20% below its SOTP value of 66.6 cents leaves a price of 53 cents per share.
In other words, wait for the Q3 earnings ad revenue or wait for SNDL stock to fall to 53 cents before considering investing. And remember, I used a ten times price-to-sales multiple. So, it is possible that the market wants to lower that multiple over time, which would lower the SOTP value.
In other words, be very careful with SNDL stock. It may not be all that it’s cracked up to be by analysts. People essentially are not buying cannabis in the volume as the market predicted.
Its prospects, at least measured by analysts, are still not as great as prior expectations. For the time being, therefore, it seems best to wait until earnings come out.
On the date of publication, Mark R. Hake did not (either directly or indirectly) own any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
