Sundial Growers Was Briefly Interesting, but Numbers Speak Volumes

Stocks to sell

Most rational arguments I’ve heard and read about Sundial Growers (NASDAQ:SNDL) stock in 2021 arrive at the same conclusion — avoid this investment. Most of my InvestorPlace colleagues are bearish on it. I know I certainly am. At no point have I thought or written that anyone should invest in SNDL stock.

a marijuana leaf displayed among other numbers related to stock performance

Source: Shutterstock

Investors should take note that there is little to redeem Sundial. Rhetoric around cannabis as an investment remains muddled.

Returns aren’t flowing out of the sector as promised in legalization and commercialization. The business case for the sector remains unproven at large.  Profitability remains a promise across the industry almost as a rule. There are outliers, and there are certainly stocks that can give big returns. 

But Sundial is neither. 

SNDL stock: The Numbers Tell the Story

The numbers I’m referring to here are Sundial Growers’ full year and fourth quarter operational results. The overall thrust of the company’s mid-March report paints a cautionary tale. I’ll get into those numbers soon, but first I’d like to note another number. 

That’s SNDL stock’s current price of 85 cents. Investors who care to look at its price chart will note that SNDL’s value has decreased by about two-thirds over the preceding 2 month period.

My hope is that investors have seen the reality of the company and are slowly but surely moving away. In any case, if Sundial Growers stays below $1 it’ll soon be bombarded with de-listing warnings. 

Financial Results

So, back to full year and fourth quarter operational results. Sundial Growers points to growth within certain brands in its corporate portfolio in its most recent earnings report. 

As examples:

“Sundial’s premium inhalable brand was launched near the end of 2019, generating just $677,000 in sales that year. In 2020, Top Leaf products generated $16.5 million in net revenue.”

“As the Company continued to diversify its product mix and shifted its portfolio to include more offerings, the revenue from the Sundial brand increased to $16.5 million in 2020 compared to $8.4 million in 2019.”

While this is certainly laudable from one perspective, the reason I mention it is that it represents a mere distraction from the bigger truth. That truth is that while smaller moving parts of the overall business improved, the overall business did not. In fact, the overall business became considerably worse in 2020 than in 2019. 

The company lost a lot of money viewed from a high level. Its 2020 net revenues of C$ 60.918 million led to a C$239.944 million net loss, 4% worse than in 2019. That’s not a particularly steep drop. 

But what is particularly concerning about Sundial Growers is its mounting operational losses. On a continuing operations basis, Sundial Growers lost C$142.698 million in total. That loss ballooned to C$206.317 million in 2020 though Sundial Growers recognized a 10% increase in gross revenue in 2020. 

Investors, or potential investors should be more than concerned. Thankfully, it seems they are, which is reflected in SNDL stock’s decreasing price in the period since the report was released. Share prices have dropped from $1.54 at close, to 85 cents in the interim. 

SNDL Stock: What to Do?

The writing is on the wall if it wasn’t before. Stay away from SNDL stock. WallStreetBets was eyeing the shares which certainly contributed to it gaining traction. Investors who want to see their investments appreciate shouldn’t follow that crowd. Likewise, investors who want to make money over any reasonable investment period should avoid Sundial Growers. Even if cannabis legalization happens on a federal level, this stock will still be one to avoid. 

Now that share prices are below $1, there should be little that remains tempting about Sundial Growers.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.”