SNDL Stock is Still a ‘Show Me’ Story Despite Strong Third Quarter
Producers of sundials (NASDAQ:SNDL) is a cannabis stock that went unnoticed before its stock rally even this year. The Canadian marijuana producer has taken advantage of wild market swings to strengthen its balance sheet and change negative sentiment around its stock.
Thanks to the massive injection of liquidity, the SNDL share is trading at a market capitalization inflated by the size of its balance sheet. Nonetheless, despite recent positives, it remains a “show me” story.
SNDL stock has recovered impressively after posting strong third quarter results and a share buyback program. The stock nearly hit the $ 1 mark on November 12 after posting a 28% gain for the day.
However, most of those gains were reversed in the following days, which was a regular occurrence for the title. Additionally, there are many variables that make SNDL stock a risky bet at this point.
A solid third quarter
No matter what the bears say, the third quarter of Sundial is a major positive for the company. Gross cannabis revenue increased 57% from the second quarter and 12% from the same quarter last year to C $ 14.4 million.
It also includes the turnover of Spirit Leaf and its franchises. In addition, cultivation revenues amounted to C $ 8.2 million while retail revenues reached C $ 6.1 million. In addition, Spiritleaf sales attributable to the Company amounted to C $ 33.5 million.
Going forward, Sundial expects a strong increase in fourth quarter revenue to C $ 19.1 million. A much larger increase in income will come when Alcanna’s sales are included in the transaction. More importantly, the company reported net profit for the first time in its history.
Its net income was C $ 11.3 million and Adjusted EBITDA of C $ 10.5 million. However, a large portion of net income is attributable to its tax recovery and to changes in the fair value of derivatives.
In terms of financial flexibility, the company declared a whopping C $ 1.1 billion in cash equivalents in September. In addition, he has unrestricted C $ 571 million with no debt. Therefore, it is in an excellent position to invest more in new targets.
The way to go
The recent acquisition of Alcanna by Sundial and its majority stake in Nova Cannabis will be a major boost to its finances. Alcanna has a colossal footprint in Alberta, Canada, with 171 alcohol retail outlets and 63 retail outlets due to its majority status in Nova Cannabis. Alcanna’s latest quarterly earnings of C $ 189 million are significantly higher than Sundial’s figures and promise a much higher valuation.
Sundial is likely to have massive reach in the market with sales from 341 retail outlets, although Nova Cannabis’ financial rewards are rather unclear. Gross profit margins are currently negative at 19% on a rolling twelve month basis. The fall in prices had a strong impact on this situation.
Perhaps the company’s investment operations are a critical aspect of future growth. It has invested more than $ 350 million to accelerate its operations. In addition, he formed a joint venture called; SunStream Bancorp with SAF Group in the search for interesting opportunities in the marijuana sector. So far, SNDL has recorded over $ 25 million in investment income so far this year, indicating some early signs of success.
Sundial Growers is a popular memes store in the marijuana business, a status that has helped the company strengthen its balance sheet. It has been performing well lately and its recent acquisitions will significantly broaden its future growth track.
However, it still has a lot to prove in terms of fundamentals and investments to be considered a long-term marijuana game. Additionally, SNDL shares are trading at more than 29 times forward sales significantly higher than their profitable US cannabis counterparts.
As of the publication date, Muslim Farooque does not have (directly or indirectly) any position on any of the titles mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com
Muslim Farooque is a passionate investor and an optimist at heart. A long-time player and passionate about technology, he has a particular affinity for the analysis of technological stocks. Muslim holds a Bachelor of Science in Applied Accounting from Oxford Brookes University.