I never had much faith in Sundial Growers (NASDAQ:SNDL). Back in February, when SNDL stock was trading near $3 per share on support from Reddit’s r/WallStreetBets, I urged readers to take profits and walk away. And when Redditors pounded the table for Sundial in May? I repeated the call.
up close photo of a marijuana joint smoldering against a pitch black background
Source: Jan Havlicek/shutterstock.com
Redditors will certainly lambast me for the second story. The stock is up 28% since then. But I stand by it. Why? Because there’s a difference between investing and what Redditors are doing.
Here’s what you should know about SNDL stock and the Reddit trade moving forward.
InvestorPlace – Stock Market News, Stock Advice & Trading Tips
SNDL Stock: You’re Not a Corporate Raider
On Reddit, investments are a game. It should be easy to pound the table for any name, no matter how woebegone, as long as you and your friends buy in and ride it to glory.
This is the kind of cynical view that always precedes a fall. Always. The ploy worked with AMC (NYSE:AMC) and Gamestop (NYSE:GME) because management took the opportunity to change those businesses. I don’t think it will work in SNDL stock’s case, however.
10 Marijuana Stocks to Buy for Their 'Beyond the Flower' Plans
Sundial is a pot grower. It also wants you to believe that it’s a pot investor, through an arrangement with its banker. That commitment was increased in April, but it doesn’t change the fundamentals.
For 2020, Sundial’s sales were down and now look to be down again. That’s based on a March quarter take of $7.8 million, down 26% from the previous quarter and down 54% from the year before. Over the last four quarters, Sundial has managed to lose over $230 million while generating sales of just $42.7 million.
In my view, this company lives because it keeps raising money from the gullible. At the end of March, SNDL had about $721 million in cash and securities on the books. The market capitalization as of Jun. 17 was about $1.8 billion. That means you’re paying $1.1 billion, net of cash, for what exactly? A company that drops $6 for every $1 that comes in?
Story continuesAre You High?
There are two fundamental facts facing marijuana growers right now.
First, marijuana is still a Schedule 1 drug in the United States, like heroin. You can predict an end to that status, but until it ends that’s the fact.
Second — and more importantly — buyers often prefer Dealer McDope to Corporate Pot. In every state where marijuana is legal, there’s still a thriving illegal market. Cops turn away when they smell smoke. States that have legalized pot have also strangled it in regulation. The result is that consumers still buy the illegal stuff, which is just as good and cheaper. Dealer McDope delivers.
You can wish that away all you want, but until people start getting punished for evading pot taxes, I don’t see a way out.
Instead, hope for Sundial and SNDL stock lies in the hype — in people telling you that things are going to turn around, that the down earnings were good or that Sundial is a bargain at these levels. As you can tell, I don’t agree.
The business won’t turn around before the fundamentals and they’re not for turning. It’s not the memes that are the problem. They’re the only things holding SNDL stock up.
The Bottom Line on SNDL Stock
I have simple rules for stock investment.
I look at the business, at the management, at the books and at the market. Only when all of those things align do I buy or suggest that anyone else do so.
I don’t time the market and I don’t do psychology. I also don’t care much what anyone else thinks. If the business is sound and management can make money with my money, I buy the stock. If not, I walk away.
Why am I confident in my investment style? Because I’ve spent 43 years covering technology and business. My knowledge is hard won and I’ve lost often, too.
If you’re in names like SNDL stock, my guess is that it’s just your turn to lose.
FREE REPORT: 17 Reddit Penny Stocks to Buy Now
Thomas Yeung is an expert when it comes to finding fast-paced growth opportunities on Reddit. He recommended Dogecoin before it skyrocketed over 8,000%, Ripple before it flew up more than 480% and Cardano before it soared 460%. Now, in a new report, he’s naming 17 of his favorite Reddit penny stocks. Claim your FREE COPY here!
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Dana Blankenhorn 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.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.
More From InvestorPlace
Stock Prodigy Who Found NIO at $2… Says Buy THIS Now
It doesn’t matter if you have $500 in savings or $5 million. Do this now.
Top Stock Picker Reveals His Next Potential 500% Winner
The post Look at the Books, Not the Memes, When It Comes to Sundial Stock appeared first on InvestorPlace.