Sundial Growers cannabis plants
Source: Sundial Growers Twitter

Sundial Growers’ Outlook Makes Its Stock a Solid Bet

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May. 19 2021, Published 8:46 a.m. ET

Sundial Growers (SNDL) stock has been volatile in 2021. The SNDL stock attracted retail investors on Reddit’s WallStreetBets forum and was up 400 percent at one point this year. The stock is now down 80 percent from its 52-week highs, but is still up 67 percent year-to-date. What's the forecast for SNDL stock? Will it rise more or fall in 2021?

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Sundial Growers is a Canadian company that manufactures and markets adult-use marijuana products. The company offers products under various brands, including Sundial Cannabis and Top Leaf.

sndl stock forecast will it rise more
Source: Sundial Growers Twitter
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What's happening with SNDL stock?

SNDL stock was trading at $0.47 at the start of the year. Investors pushed the stock to $3.96 based on the company's aggressive growth plans and expectations of marijuana being legalized federally. It didn’t take long for the rally to fizzle out, and the stock is now trading at $0.79 after a sustained correction.

SNDL stock fell as investors took profits after a partly speculative rally. Moreover, Sundial has been raising capital to fund its growth plans. The company's outstanding shares increased to 1.86 billion in May 2021 from less than 200 million in July 2020. Equity dilution is also a big reason for the pullback in SNDL stock.

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sndl stock forecast will it rise more
Source: Pixabay

SNDL’s stock price forecast

According to MarketBeat, analysts' average target price is $0.73 for SNDL stock, which is 7 percent below its current price. Among the five analysts tracking SNDL, three recommend "hold," while two recommend "sell." None recommend "buy." Their highest target price of $1.15 is 46 percent above the stock's current price, while their lowest target of $0.40 is 49 percent below.

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On May 13, ‎Canaccord Genuity analyst Shaan Mir upgraded SNDL stock to "hold" from "sell," and raised its target price to $0.70 from $0.65. In a research note, Mir said that the company’s huge cash balance could be deployed into accretive investment opportunities to generate additional returns. He added that the stock is trading near its implied valuation after the recent pullback.

Will SNDL stock hit $1?

SNDL stock seems to have bottomed out, and its current price levels are appealing for fresh exposure. Sundial is transitioning its business from wholesale to branded sales. The company’s branded cannabis sales were 74 percent of its total sales in the first quarter. If its net revenue from branded cannabis products stays strong, the company is well positioned for a healthy EBITDA margin and cash flow.

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According to Sundial, its net asset value per share was $0.61 as of Mar. 31, which is not far from SNDL's current market price of $0.79. 

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Is SNDL stock a good investment?

SNDL stock looks attractive for many reasons now. The stock has pulled back more than 80 percent from its 52-week high, opening a window for investors to enter at a steep discount. The company also has bright growth prospects. The global cannabis market is on course to hit $90.4 billion by 2026 from $20.5 billion in 2020.

In the first quarter, Sundial reported positive adjusted EBITDA for the first time ever, of 3.3 million Canadian dollars. While that's a relatively small figure, it might suggest the beginning of a favorable trend. The company’s sales, marketing, general, and administrative costs shrank 35 percent year-over-year to 8.0 million Canadian dollars in the quarter.

On May 5, Sundial agreed to acquire Inner Spirit Holdings and Spiritleaf Retail Cannabis Network for 131 million Canadian dollars. The acquisition is expected to boost Sundial’s top-line growth. Moreover, Sundial reported cash and cash equivalents of 873.5 million Canadian dollars, with no outstanding debt as of Mar. 31. That liquidity could go far in helping the company grow.

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