SNDL Stock Forecast and Price Prediction June 2021 – Is SNDL a Good Stock to Buy?

Sundial Growers (SNDL) stock has gained momentum over the last couple of weeks and bounced back sharply from its recent lows. What’s the forecast for SNDL stock and is it a good buy in June 2021?

Sundial Growers is a penny cannabis company. The stock went as high as $3.96 amid the Reddit-driven short squeeze. However, like all the stocks pumped by Reddit group WallStreetBets, it soon crashed. Nonetheless, despite the boom-bust cycle, the stock is up over 121% for the year.

Cannabis stocks have been very volatile

Cannabis stocks have been very volatile over the last eight months. There was a splendid rally in cannabis stocks after Joe Biden was elected as the US president. Voting alongside the US presidential elections, four more US states legalized recreational marijuana. The rally in cannabis stocks, including SNDL, continued after the Georgia run-off in January.

However, the Biden administration hasn’t yet acted on expectations of legalizing marijuana at the federal level. The pressing priority of the administration has been to provide a stimulus to the US economy and ramp up the inoculation drive.

Biden administration

The Biden administration has also moved forward on the promise to pivot the US energy mix towards green energy. The administration has taken several measures in the direction including mandating the conversion of the federal fleet to zero-emission vehicles. Infrastructure investment has been another priority for the administration.

That said, there has been a renewed chatter of marijuana legalization in the US after Marijuana Opportunity Reinvestment & Expungement (MORE) Act was reintroduced in the US House. All cannabis stocks including SNDL have risen sharply on expectations of federal marijuana legalization.

SNDL stock technical analysis

SNDL stock has found a strong support near its 200-day SMA (simple moving average) and has also crossed above the 50-day SMA which is currently at $0.90. The stock has a 14-day RSI of 55 which is a neutral indicator. The next level to watch for SNDL will be its 100-day SMA which is currently at $1.10. The stock is trading near the price level in the US premarket price action today and if it can break above the level it will be a bullish technical indicator.

SNDL stock forecast

Analysts are not too bullish on SNDL stock, however. Its median target price of $0.72 is a 31% discount over current prices. Its highest target price is $1.43 while the lowest target price is $0.45. Of the six analysts covering the stock, three have a hold rating and the remaining three have a hold rating.

Recent developments

In May, SNDL released its first-quarter 2021 earnings. It posted a positive adjusted EBITDA of $3.3 million in the quarter. It was the first time in the company’s history that it had posted a positive EBITDA. Several large cannabis companies are struggling to cut their losses and there has been a wave of consolidation in the industry as players try to lower the cash burn amid intensifying competition. Last month Tilray and Aphria had merged to create the world’s largest cannabis company.

Meanwhile, SNDL’s positive EBITDA was not due to the core cannabis operations but due to the earnings from its investments. The company capitalized on the spike in its share price and issued new shares. It had cash and cash equivalents of $623 million as of May 7. The cash holdings are even higher than Tilray. After accounting for the recent investments, the company has almost $900 million in cash and investments. In contrast, SNDL has a market capitalization of less than $2 billion.

SNDL has been trying to profitably invest the cash. It has also formed a joint venture with SAF Opportunities. Among others, the venture would look at setting up a SPAC (special purpose acquisition company) and invest in cannabis companies. Last month, SNDL had announced a deal to acquire Inner Spirit for $131 million. It was a mix of cash and equity and SNDL’s outstanding share count will rise even more after the acquisition.

SNDL’s core business hasn’t been doing well

SNDL’s core business hasn’t been doing well. It has been pivoting towards high-margin value-add products like all other cannabis companies. The company has had to write down millions of dollars of inventories in the last two quarters amid sagging sales. However, markets are bullish on the stock due to its cash holdings.

While SNDL was itself a troubled cannabis company in 2020, it is now flush with cash and has been investing in and lending to other cannabis companies. As the market conditions have hardened for cannabis companies, SNDL should be able to invest the cash profitably.

There is an upwards momentum in cannabis stocks and SNDL stock might rise a bit more from these levels. The stock looks a good play on the turnaround of the core business and the massive cash on its balance sheet.

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