SNDL action: Sundial could drop soon at a price not to be missed
Right now you can say that Producers of sundials (NASDAQ:SNDL) is cheap, but not cheap. In other words, stocks are overvalued at 70 cents per share. Despite the fact that the stock has fallen more than 82% from its meme stock high set in February.
The reason? In large part, the company’s heavily dilutive decision to raise funds through side deals. The Canada-based cannabis company has seen its share more than double, from an estimated 918.8 million in circulation as of December 31, 2020, to just over 2 billion today. As a result, even taking into account the $ 795.23 million resulting from its capital increases, the shares are trading at an inflated valuation.
For now, this indicates to stay away from the stock. Unless one thing happens: possible market volatility causes it to fall at a price not much higher than the per share value of the cash in its coffers (around 39 cents per share). At prices at or near that level, you will essentially get the operating business and all of its possible perks for free.
Yes, there is still a risk in buying it at 39 cents a share. A game-changing catalyst might again not go as planned. The company’s other catalyst, which is to tap into its war chest, could also fail. Nonetheless, if you wait until the price is right, it can be a solid, high risk opportunity.
SNDL stock: why it’s better to wait until it takes another dive before buying
Rolling the dice on a cheap penny stock can be tempting. Especially when it’s one like Sundial, which has apparently bottomed out at around 70 cents a share. It may sound like a high risk bet worth making at current levels. But you better wait for a price where the odds are more in your favor.
As I discussed above, this price is around 39 cents per share, which is about 57.2% below the level where SNDL stock is trading today. Of course, you might be thinking that another big drop like this can’t happen. His catalyst for legalizing the American pot could serve as a floor, preventing stocks from going down again.
Where is it? Legalization at the US federal level is unlikely to happen until at least 2022. The extended timeline for this major catalyst could mean that short-term problems will prevail in the months to come. For example, a change in market sentiment from bullish to bearish. This is already starting to play out, as evidenced by growing fears of a stock market correction.
A market correction can only mean a temporary drop in stock prices at all levels. Still, it may be enough to temporarily send Sundial to a more ideal entry point. Buying it then, instead of now, could spell a situation with larger potential gains and lower downside risk.
It’s not a Slam Dunk, but the two sundial catalysts could still deliver
Much of the appeal of SNDL stock is its catalyst for legalizing the American pot. Without the lifting of restrictions on marijuana at the federal level, Canadian pot companies like this cannot enter the US market. Once that happens? It will be a tremendous boon for him and his peers based north of the border.
With legal marijuana sales expected to hit $ 41 billion in five years, capturing a small chunk of the U.S. market could be a game-changer for Sundial. The announcement of a reform alone could mean a considerable increase in its share price. Of course, it’s still not clear that full pot legalization is only a year or two away. Congressional traffic jam could still mean a long way to go.
Fortunately, there is another catalyst that could help increase its value in the years to come. This would be the strategy of the âdouble pillarâ of the company, which my Investor place his colleague David Moadel wrote about it in his September 13 article on the stock. First, the integration of its branded cannabis operations into its recently purchased Spiritleaf retail chain.
Second, he puts his money to work in his SunStream Bancorp cannabis joint venture with a private equity firm SAF Group. This business (lending money to other early stage cannabis companies) can be risky, but it could also be something with a more immediate payoff than turning around its operating business.
Keep an eye on it, as stocks may soon drop at a price you can’t miss
At 70 cents a share, Sundial stock is overvalued, considering it has an enterprise value (market cap minus cash) of around $ 614.7 million, compared to expected sales of around $ 74 million in 2022. It can become a high-risk buy, however, if it sells in a big way again.
While both of its catalysts may not work, if market volatility causes it to priced at or near its cash position, consider that it is high time to buy SNDL shares.
At the date of publication, Thomas Niel did not hold (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Thomas Niel, contributor for InvestorPlace.com, has been writing unique stock analysis for web publications since 2016.