Why You Should Care About Sundial Growers Most Recent Earnings

Stocks to sell
  • Sundial Growers (SNDL) reported its first quarter (Q1) 2022 financial results on May 16. Expect some highly volatile trading sessions for SNDL stock.
  • Even under 50 cents per share, the stock is not cheap and the fundamentals remain very weak.
  • The delisting risk remains a major concern.
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Sundial Growers (NASDAQ:SNDL), a company that produces, distributes, and sells cannabis products in Canada, announced its Q1 2022 financial results on May 16 after the stock market close. I expect some volatile trading sessions for SNDL stock following these results.

Earnings are one of the best ways to expect a stock to move. The bad thing is you do not know in which direction the move will go. SNDL stock closed at $0.3840 on May 13. On May 16 during pre-market hours, the stock was up nearly 15% to 44 cents. I am bearish on SNDL stock and don’t consider the upcoming earnings to be enough to change the performance of the stock this year.

In 2022, SNDL stock is down by 24.3%. Buying the stock in anticipation of a rally due to a strong earnings report is too risky and does not make much sense now due to the fundamentals of the company.

SNDL Sundial Growers Inc. $0.43

Can the Q1 2022 Earnings Report Be a Game-Changer?

Last quarter’s earnings were mixed, as the cannabis producer reported earnings per share (EPS) GAAP of negative two cents and revenue of $17.72 million, a beat by $3.69 million. The expectations for Q1 2022 are for EPS GAAP of zero cents and revenue of $15.78 million.

What could fuel a rally for SNDL shares? A beat on EPS, like when the firm reported net income of $8.98 million and EPS diluted of zero cents, or a better than expected sales growth and a beat on both EPS and revenue. The latter seems to have slim chances, in my opinion.

Is SNDL Stock a Good Buy?

What makes a good stock to buy? Profitability, growth, key financial ratios and valuation. I do not consider SNDL stock to be cheap, even under 50 cents. To start, shareholders have been diluted in the past year, with total shares outstanding growing by 28.2%. That is a very negative factor.

Second, for a penny stock like Sundial Growers, it is easy to get a relief rally because it is a meme stock supported by Reddit. This is one of the worst reasons to buy the stock now, as it is purely speculative and without any solid fundamental reason in favor of investing. The company burned cash for the whole period of 2017 to 2021 and accumulates negative retained earnings.

Retained earnings, negative $2.73 million in 2017, have grown to negative $624.24 million in 2021. Should you buy shares of a company that is widening losses? I do not think so.

Will SNDL Stock Get Delisted?

On Feb. 8, 2022, Sundial Growers reported “that it has received an extension of 180 calendar days to regain compliance with Nasdaq’s minimum bid price requirement.”

Now the date to monitor is Aug. 8. What can move the stock above $1 for a minimum of 10 consecutive trading days before August 8, 2022? There could be a short squeeze, but I do not believe it will last if it happens. Stellar earnings could also help, but I do not think it is a very likely scenario. Therefore, the delisting risk remains.

The only solution is a reverse stock split, which is often related to companies in distress. A reverse stock split may save Sundial Growers from getting delisted, but it will not change the value of the company.

Buying shares of Sundial Growers is now a speculative bet. Be fully aware of it to avoid any negative surprises.

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On the date of publication, Stavros Georgiadis, CFA  did not have (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.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.

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