Delayed several times, Sundial Growers (NASDAQ:SNDL) says it expects to file its annual earnings report by Apr. 29. Assuming no further delays, this makes this upcoming Friday the next big event for SNDL stock. Ahead of this, is it time to load up on shares? No, but not because of the results themselves. Per analyst estimates, it is expected to report narrower losses for the year than it did in 2020. Beyond just the earnings themselves, updates to guidance could be promising, as well.
Last month, Sundial closed on its deal to buy Alcanna, a Canada-based liquor and cannabis retailer. Already profitable, this acquisition should enable it to make more progress getting out of the red. More details about the upside from this deal could be revealed with earnings. Alongside this, there could be more information provided about its growing investment operations segment. Lending money to other pot companies at high interest rates, it has committed hundreds of millions of dollar to this venture.
Even so, any buzz from positive results or updates may not last. Why? It does nothing to change a key risk with the stock. I’m talking about the downside risk from a likely reverse stock split within the next few months. Barring a move to above $1 per share for ten trading days between now and Aug. 8, SNDL stock needs to reverse split to maintain its NASDAQ Exchange listing.
What’s so bad about a reverse-split? Although it currently has a cheap stock price, Sundial is actually pricey in terms of its market capitalization relative to earnings — or lack thereof. Its rock-bottom stock price makes it hard to short. But if it reverse splits, pushing its stock price above $5 per share, the short-side will have an easier time betting against it. This could cause it to move lower.
Sure, any drop caused by a reverse-split or increased short-selling may not be massive. After all, the stock already trades for just above tangible book value of 48 cents per share. Still, if you are interested in entering a position, perhaps as a bet on U.S. pot legalization, don’t rush in. Instead of buying ahead of or after earnings, wait for a reverse split before buying. It may result in shares plunging to a discount to tangible book, making SNDL stock both a value play and a moonshot play.
On the date of publication, Thomas Niel 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.
