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Sundial Growers Remains a Show-Me Story Despite Improvements

  • Sundial Growers (SNDL) stock has delayed its quarterly results due to increased corporate activity
  • The company plans to diversify but streamline its business in the future
  • Despite improvements, there are better options in the marijuana industry than SNDL
The Sundial Growers (SNDL) logo is on a phone screen with a light blue background in front of the sundial logo on a white background
Source: Shutterstock

Sundial Growers (NASDAQ:SNDL) stock was in recovery mode due to its fourth-quarter earnings announcement on March 29. However, after its management delayed earnings results, SNDL stock was back in the red, a familiar territory. The $1 mark looked well-within sight after March but now appears a long shot.

Sundial became one of the more popular meme stocks in the cannabis business last year. Its status allowed the business to build a cash war chest and secure its liquidity position. Moreover, the company has effectively structured its operations to expand its cannabis footprint and reduce operational expenses. Hence, the business looks more promising than in a long time.

However, it would be best for risk-off investors to see how the Sundial story evolves. A lot is happening for the company at this time, and it’s best to employ a wait-and-see approach to see the fruits of its labor.

SNDL Sundial Growers $0.5177

Why Did Sundial Delay Its Earnings Call?

Sundial was initially going to report its fourth-quarter and full-year results on March 29. However, its management is pushing back the release date by a couple of weeks, leaving investors in a spot of bother.

In a recent SEC filing, Sundial states the delay is mainly due to the first time it must report on its internal control procedures in compliance with the Sarbanes-Oxley Act of 2002. Its management has added the requirement became necessary due to the rapid growth and corporate activity over the past couple of years.

Investors are mighty excited over Sundial’s upcoming results as it posted a surprise profit during the third quarter, which is typically uncommon for marijuana companies. It posted a healthy CA$11.3 million net income during the third quarter, a massive turnaround from the CA$71.4 million loss it posted in the prior-year period.

However, the profit made during the recent quarter was not due to core operations. Investments had plenty to do with it due to fair value changes and tax benefits. Hence, there is a good chance that these one-off items won’t impact upcoming results.

In the past year, Sundial has failed to beat consensus estimates and has had a patchy record from an earnings perspective. Hence, if the past is any indicator for the future, it is in for another rough showing during the fourth quarter. Moreover, the business has been burning cash at an alarming pace. It used over CA$56 million in its day-to-day activities, nearly three times the amount it burned a year ago.

Potential Spin-Offs and Alcanna’s Impact

The acquisition of alcohol retailer Alcanna came as a surprise for Sundial’s shareholders. You’d expect Sundial to acquire another cannabis firm to expand its market share in the industry. Instead, it went for diversification, puzzling investors and the industry.

However, if we dig into the details, it doesn’t come as much of a surprise. Sundial aims to expand its coast-to-coast footprint, and Alcanna owns over 60 retail marijuana stores in Canada via its majority stake in Nova Cannabis.

As we advance, the company plans to focus more on its core business areas. Moreover, it also aims to pepper those plans with its diversification efforts. CEO Zach George talked about spin-offs, which could be an effective way to focus on core competencies. However, it would compromise the diversity and size of the overall business.

Bottom Line 

Plenty is going on with Sundial at this time. It’s looking to diversify its operations and improve the productivity of its existing businesses. Moreover, it has fortified its balance sheet by taking advantage of its meme stock status. Plus, it posted a surprise profit in its last quarter, which has investors upbeat about upcoming results.

Truth be told, there has been a lot going for Sundial of late, but it remains a show-me story. It would be best for investors to let these developments play out before moving on SNDL.

On the date of publication, Muslim 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 Publishing Guidelines.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.

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