Sundial Growers Stock Price Forecast July 2021 – Time to Buy SNDL?

Sundial Growers stock was trading lower in US premarket trading today after releasing its second-quarter earnings. What’s the forecast for SNDL stock and is it a good buy in August 2021?

Sundial Growers is a Canadian cannabis company. The company also has an investment vertical as it’s a cash-rich company with millions of dollars of cash on its balance sheet. The stock was targeted by Reddit group WallStreetBets and it fully capitalized on the opportunity and raised plenty of cash by selling shares.

Sundial Growers recent developments

Sundial Growers reported its second-quarter earnings yesterday after the markets closed. The company’s revenues tumbled by more than half to CAD (Canadian dollars) 9.1 million as compared to CAD 20.1 million in the second quarter of 2020. The company’s revenues have been falling steeply over the last many quarters as it has been realigning its business to focus on value-add cannabis products.

The company posted an adjusted EBITDA loss of CAD 0.2 million. It had turned positive on the adjusted EBITDA level in the first quarter. However, the profits came from investment income and not the core cannabis operations which continue to post losses.

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SNDL has a two-pillar business strategy

Zach George, SNDL CEO talked about the two-pillar business strategy for the company. “The first pillar is comprised of our core cannabis operations which are now vertically integrated with the acquisition of the Spiritleaf retail network,” said George in his prepared remarks. He added, “Our upstream cultivation results within our indoor modular facility continue to improve amidst the intentional reduction of activity and we are excited about targeted innovation that we plan to introduce later this year.”

The second pillar is the investment business where Sundial Growers has committed a lot of capital towards its joint venture, SunStream Bancorp. According to the company, the joint venture “is focused on deploying capital within the cannabis sector on an attractive risk-adjusted basis and is exploring broader opportunities within financial services.”

Investment business

Sundial Growers reported total cash, marketable securities, and long-term investments worth CAD 1.3 billion at the end of June. To put that in perspective, the company’s market cap is only around CAD 2 billion. Since SNDL’s core cannabis operations haven’t been doing well, it derives most of the value from the investment business.

The company has been writing off millions of dollars of inventories every quarter and has been liquidating obsolete inventory. Meanwhile, the company has been making progress in the business.

“We have seen continuous improvement in our cultivation outcomes as we remain focused on best practices to deliver strong results in potency, yield and terpenes. In the last two months of the quarter, we experienced the highest successive average potency at harvest since operations began at Olds,” it said in its release.

Sundial Growers stock forecast

Wall Street analysts are not too bullish on Sundial Growers stock and it has four buys and one hold rating. None of the analysts has a buy or equivalent rating on the stock. SNDL’s median target price of $0.70 is a discount of 15.1%. Its street high target price of $0.80 is similar to the current prices while the street low target price of $0.44 is a 47% discount over current prices. To be sure, SNDL’s core cannabis business has been a weak spot but the investment business has been doing pretty well.

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.

SNDL stock technical analysis

Sundial Growers stock is not looking too bullish on the charts. The stock was facing resistance at the 100-day SMA (simple moving average) and failed to cross above the channel. It currently also trades below the 50-day and 100-day SMA. The 14-day RSI (relative strength index) of 47 is a neutral indicator. However, the 12,26 MACD (moving average convergence divergence) gives a buy signal.

Sundial Growers long term forecast

Analysts expect SNDL’s revenues to rise 62% to CAD 90 million in 2022. Based on an adjusted enterprise value of around CAD 700 million at the end of June, we get a 2022 EV-to-sales multiple of 7.7x which is not high looking at other cannabis companies.

Sundial Growers stock looks like a good penny cannabis stock to buy. The company is working on a turnaround and the stock could see better days ahead if the management executes well. The stock could also benefit from any uptick in cannabis stocks, which have been sagging after the spike at the beginning of 2021.

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