We're in trouble.
Sundial Growers: Implied downside of 77%
Though it rocketed up Robinhood's leaderboard in a matter of months, and is now the fourth most-held stock on the entire platform, Canadian marijuana stock Sundial Growers (NASDAQ:SNDL) is being projected by Wall Street to lose 77% of its value over the next 12 months.
Shares of Sundial have catapulted over the last four months from a combination of two catalysts. First, there's growing optimism that the U.S. might legalize cannabis at the federal level. Joe Biden's victory in November, followed by the Democrats taking back the Senate in early January, offers hope that reform legislation could reach the Senate floor this year. Legalization would allow Sundial and its peers to enter the more lucrative U.S. weed market.
The other key driver for Sundial is the retail investor-fueled Reddit rally. Members of the WallStreetBets (WSB) chatroom on Reddit effectively banded together to buy shares and out-of-the-money call options on heavily short-sold companies or penny stocks. Sundial primarily falls into the latter category.
While it's had an excellent four-month run, Sundial lacks the characteristics long-term investors are typically looking for in a company. For instance, even though it's sitting on an estimated $680 million in cash (this figure takes into account Sundial's recent investment in Indiva and the exercising of 98.3 million warrants), management completely disregarded wealth creation by drowning investors in more than 1.1 billion new outstanding shares since the end of September. With approximately 1.66 billion shares, it's going to be almost impossible for Sundial to generate a meaningful profit or exit penny stock territory.
Furthermore, the company's management team made the decision to move away from wholesale cannabis and toward higher-margin retail operations. With the shift ongoing, Sundial's year-over-year sales comparisons have fallen off a cliff. Sundial has also endured a couple of sizable writedowns.
