InvestmentsIs It Finally Time To Buy Sundial Growers Stock?...

Is It Finally Time To Buy Sundial Growers Stock? – Motley Fool

-

- Advertisment -spot_img

Returns as of 11/25/2021
Returns as of 11/25/2021
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Sundial Growers (NASDAQ:SNDL) is popular among meme stock traders and cannabis aficionados, but it hasn’t exactly had a gilded life on the market. The stock is down almost 10% over the last six months, though it is up 44.7% year to date.
There’s reason to expect that 2022 will be a less turbulent time for Sundial than 2021, so it makes sense for investors to evaluate the stock with a critical eye. Has Sundial finally reached the point where its prospects are more positive than negative, or is it still fundamentally just a meme stock that’s going nowhere fast?
Image source: Getty Images.
Sundial has had quite the arc over the last couple of years, and it’s largely a different company now than it used to be. 
Whereas its revenue was formerly derived solely from the cultivation and sale of cannabis, since its stock became the subject of the attention of Reddit’s trader army in early 2021, it was able to raise significant capital by issuing new shares and warrants. And it’s using that funding to branch out into being, essentially, a cannabis sector investment bank. 
Through the first three quarters of 2021, it reported making CA$18.2 million in investment income off its CA$489 million in deployed capital. By way of comparison, in Q3 it reported net cannabis sales revenue of CA$14.4 million. So, its investments will likely continue to be an important supplemental income source over time, but they aren’t going to eclipse cannabis sales.
And, with its planned acquisition of Canadian liquor chain Alcanna for CA$346 million in stock, Sundial will soon have yet another segment to fuel revenue growth. That could bode well for the company, though there’s also a chance that its impact on the cash burn rate may be detrimental.
One major issue with Sundial is that it doesn’t yet have a track record of success in any of its business segments. Its quarterly revenue is growing quite slowly, even when considering investment income. And, while the acquisition of Alcanna will diversify its business, Sundial has no particular competitive advantages or special acumen in the liquor business.
Sundial also recently announced a CA$100 million share repurchase program, which will help to unwind some of the dilution it underwent when it raised its stockpile of investment cash. While stock repurchases are usually a good sign, this one should raise investors’ hackles. 
When management throws money into share repurchases, it’s communicating that this strategy will be a good one for shareholders. For a young company like Sundial, though, it typically makes more sense to reinvest whatever money it has on hand into growing the business. 
The implication here may be that Sundial can’t easily pour its excess cash into investments or acquisitions that have better potential to grow its revenues, and that’s a big problem. Giving cash back to shareholders in the form of a repurchasing campaign may work to pump up the stock, but it doesn’t secure the future of the company, nor does it necessarily support long-term value.
At present, I wouldn’t be rushing to buy this stock. 
But, as the company continues to grow into its new role as a strategic cannabis investor, it’s important to recognize that things are changing for the better. It reported a positive net income from operations for the first time in the third quarter, and it still has CA$571 million in unrestricted cash to invest in growth. If it can replicate that progress in subsequent quarters, its share price may pick up steam too.
Until investors see that happening in future quarters, however, it’d probably be best to wait before adding this stock to your portfolio — unless you’re particularly tolerant of risk.

Discounted offers are only available to new members. Stock Advisor will renew at the then current list price. Stock Advisor list price is $199 per year.
Stock Advisor launched in February of 2002. Returns as of 11/25/2021.
Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
Making the world smarter, happier, and richer.

Market data powered by Xignite.

source

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Latest news

Engineer Turns Entrepreneur After Fully Online MBA – BusinessBecause

Please try again or another word Register or Login Partner Sites Login/Register Experienced engineer Matti Jokinen...

Fake money, real experience: Dal students profit from pretend hedge fund – The Signal

Dalhousie Investment Society 'doesn’t get the attention it deserves,' says professor By Ryan Bellefontaine December 1, 2021, 8:00 am ASTLast Updated:...

5 Stocks I Expect Will Make Me Wildly Rich by Retirement – Motley Fool

Returns as of 12/01/2021Returns as of 12/01/2021Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps...

This Entrepreneur Proved That Startups Can Reinvent Themselves When Necessary – Forbes

Chris Riley, Co-founder of USA RxStarting a business isn't easy, and the odds of success are always against you....
- Advertisement -spot_imgspot_img

How Young People Can Get Started in Real Estate Investing – Motley Fool

Returns as of 11/30/2021Returns as of 11/30/2021Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps...

Unify Platform AG Launches New Feature on UNIPLAT: Credit Rating of Researchers and Entrepreneurs – Yahoo Finance

- Credit Rating Helps Researchers and Entrepreneurs to Visualize Their Credibility -YOKOHAMA, Japan, Nov. 30, 2021 /PRNewswire/ -- Unify...

Must read

- Advertisement -spot_imgspot_img

You might also likeRELATED
Recommended to you