Sundial Growers (NASDAQ:SNDL) stock has long disappointed investors. In the more than two years SNDL stock has traded publicly, it has declined consistently. Investors who bought in back in August 2019 didn’t expect that, that’s for sure.
Sundial Growers has consistently disappointed investors, dropping from $11 back then to around 62 cents today. In raw price terms, the news continues to be very negative for the cannabis company. That means investors have little reason to buy in at this moment.
Ignore any headlines that tout SNDL as a penny stock worth investing in. The most recent news with Sundial relates to Nasdaq compliance. That news isn’t particularly damning, but it does raise the prospect of potential changes ahead.
Here’s what investors should know.
SNDL Stock and Non-Compliance
Sundial Growers has had consistent troubles complying with the Nasdaq minimum bid rule. The stock has traded below the $1 minimum bid since March 2020, with the exception of a brief period in early 2021 due to Reddit excitement. That too, passed, sending SNDL stock below $1 again.
On Aug. 9, 2021, Nasdaq notified the company that it was not in compliance with the $1 rule and that it had until Feb. 7, 2022 to become compliant. That day has, of course, passed. The fortunate news, though, (if it can be called that) is that the company was granted a 180-day extension on Feb. 8, 2022.
What does this mean? Not much, except that Sundial is increasingly likely to undertake a reverse stock split.
Is a Reverse Split Coming?
A reverse stock split occurs when a company decreases the number of shares outstanding in order to boost its price. For example, Sundial could halve the number of shares outstanding if it were to undertake a reverse stock split. In that case, prices would double and SNDL stock would then trade in the area of $1.20 per share.
Sundial could undertake a 4-for-1 reverse stock split, too. In either case, its market capitalization would remain the same. But it would also signal that the company is very worried about a delisting, having given up hope of organically moving above $1. That wouldn’t do much for already weak investor confidence.
That weak investor confidence is underpinned by less than stellar financial performance as well.
Concerning Losses and Inflation Woes
The truth is that Sundial Growers loses a lot of money. Through the third quarter of 2021, the company lost $175.4 million CAD ($137.7 million). That was higher than the $142.2 million CAD it lost in 2020 — and certainly not in the right direction.
The lone bit of good news there was that Sundial did post a $11.31 million CAD ($8.87 million) net gain from continuing operations during Q3. But again, Sundial still performed worse in 2021 through that period than it did in 2020 during the same time. It seems premature to call that Q3 net gain a turnaround by any means.
But that’s not all. The stock market is also quickly moving toward favoring valuation based stocks rather than growth stocks. Two straight months of worse-than-expected inflation figures are to blame.
The Federal Reserve was already signaling that it would tighten monetary policy sooner than expected when December inflation figures were released. Now that January numbers are even worse, expect more of the same.
That means SNDL stock, with its weak fundamentals, is about to look even less attractive to potential investors.
What to Do with Sundial Growers
There’s nothing to suggest that SNDL stock should be attractive any time soon. In fact, quite the opposite.
Shares of Sundial don’t seem capable of rising above $1 on their own. And, fundamentally weak SNDL is about to look even worse. Inevitable Fed news will only send it lower. On top of that, the company might have to do a reverse stock split to become compliant with Nasdaq pricing rules.
This all spells continued trouble for its shares.
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On the date of publication, Alex Sirois did not hold (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.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.