- Sundial Growers (SNDL) stock price, at 41 cents per share, has fallen far below the Nasdaq’s minimum continued listing requirement of $1 per share. And the company has exhausted both its grace periods to bring the share price back to compliance.
- Shareholders will most likely vote for a reverse stock split in a June meeting.
- 2022 is a turnaround year for SNDL stock, Wall Street expects profitability this year.
Following an earlier coverage of Sundial Growers (NASDAQ:SNDL) stock in January when I pondered the possibility of SNDL stock announcing a reverse stock split to avoid getting delisted from the Nasdaq, the company received a 180-day extension to its compliance deadline by the exchange. However, Sundial’s stock price must still rise to $1 a share and hold above that threshold for at least 10 straight days between now and Aug. 8, 2022.
However, a market sell-off hasn’t been too kind to SNDL stock, and shares have plunged this year to print a new 52-week low of 34 cents on Thursday, May 12. The company’s share price is far from the ideal trading range to guarantee its extended listing on the Nasdaq.
Sundial Stock Investors May Expect a Reverse Split Next Month
Sundial may not receive another extension from the Nasdaq. Two consecutive chances are usually the maximum allowed to get a company’s share price back above $1 for at least 10 consecutive days.
Management at Sundial Growers revealed a plan to go ahead with a reverse stock split during the third quarter of 2022. Shareholders will vote on the proposal during the company’s annual meeting expected on June 27.
It’s in the company’s best interests to remain publicly listed. Therefore shareholders may unanimously vote on the reverse split agenda — they most likely prefer a listed and liquid SNDL stock to an illiquid, discounted, privately traded one.
Here’s What SNDL Stock Split Could Look Like
The company had 2.4 billion shares of common stock outstanding as of April 25. Given a trading range below 40 cents a share on Friday, Sundial Growers may do a 1-for-3 reverse stock split at the bare minimum to bring the share price above $1 per share.
However, that low conversion rate could leave too little room for SNDL stock to fall before Nasdaq’s compliance team’s eyes focus on Sundial again. Thus, management may do something like a 1-for-13 reverse stock split to lift shares above $5 and out of penny stock territory.
A reverse consolidation won’t affect Sundial’s fundamentals, besides its number of outstanding shares, and the finer details associated with share count. These include diluted earnings per share and cash flow per share numbers, which may appear higher than before given a smaller denominator.
That said, the markets have a tendency of punishing stocks that undergo a reverse split. It’s psychologically regarded as proof of an underperforming business.
An Unusual Stock Split
Reverse stock splits usually happen during the worst economic and financial times for a listed company. This is true for Sundial as its legacy cannabis business has struggled in Canada. However, such splits don’t usually happen during a turnaround, just when everything is about to get better.
Yet Sundial Growers is about to do a share consolidation just as its financial fortunes are about to improve.
Wall Street has great expectations for Sundial Growers’ business in 2022. Its recently closed acquisition of Canadian liquor retailer Alcanna unlocks positive cash flow generation capacity. Analysts project about 710 million CAD in revenue and a record 0.01 CAD positive earnings per share for 2022. Sundial only managed to invoice 56 million CAD in sales last year and posted a 0.12 CAD loss per share.
A swing to profitable operations could be good news for SNDL stock investors later this year. “We are beginning to see positive momentum across all of our key operating segments and remain committed to our goal of becoming free cash flow positive within the 2022 calendar year.” CEO Zach George was quoted as saying in April.
Is SNDL Stock a Buy Now?
Although Wall Street is hesitant on Sundial Growers stock, the cannabis name seems like a speculative buy as it breaks into profitability. SNDL stock has a consensus “hold” rating from analysts. The average analyst price target on Sundial Growers stock of 74 cents implies a substantial 80% upside over the next twelve months.
On the date of publication, Brian Paradza 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.
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