Is Sundial Growers Stock the next GameStop?
Actions of GameStop (NYSE: GME) climbed more than 1,600% in January, although the outlook for the video game retailer remains bleak in what has become a more digital world for gamers. Retail investors looking to send a message to Wall Street have helped the stock soar to unimaginable heights, forcing short squeeze on those who bet the company’s shares will fall. But with the news that some brokerages, including Robinhood, which is popular with young retail investors, have started placing restrictions on the stock’s trading, its value could start to drop within days and weeks. to come if the purchase decreases. Even without restrictions, it is likely that GameStop shares will start to fall as investors choose to cash in their lucrative profits.
Retail investors have also recently started buying shares of Nokia and AMC Entertainment Holdings, two other companies in difficulty. And there is another stock that also saw a sharp rise in price over the past week: Producers of sundials (NASDAQ: SNDL). Could this struggle marijuana company be the next to take off? Let’s take a closer look at why this may or may not happen.
The sundial climbed more than 37% in one day, despite no news
Sundial stock on Thursday closed at $ 0.825, an increase of 37.3% from the previous day’s close of just $ 0.601. And that was after the stock fell from a high of $ 1.36. Not only did the share price rise, it was also more active, with investors trading over 2.1 million shares on the sundial during the day. During the previous week, the stock’s daily trading volume remained below 300,000. The company did not issue any press releases and it was the same day that the brokerages began to limit the exchanges on GameStop.
The next day, as trading restrictions on GameStop eased, Sundial’s volume fell to 1 million and the stock fell to $ 0.815. However, the price drop can be attributed to a $ 100 million stock offering that the company announced that day, wasting no time to profit from the surge in its share price. Without the offer, it is likely that Sundial shares would have continued to rally.
If retail investors are unable to buy GameStop stock, marijuana stock could remain in high demand. It is currently on the Robinhood Top 100 list, which is a great place to find out which stocks are trending with retail investors.
Why Sundial may not be following in GameStop’s footsteps
However, even if Sundial becomes the target of retail investors, that doesn’t mean its shares will reach GameStop’s astronomical levels. One of the reasons GameStop soared was due to a short press, as many investors were selling the stock short, expecting it to decline before this recent surge. And compared to GameStop, and to a lesser extent even AMC, the percentage of outstanding Sundial shares that are short is very modest:
Sundial investors should temper their enthusiasm, as there isn’t as much potential for stocks to reach levels similar to GameStop. And even if the stock picks up, management could follow suit with another stock offering.
Money is important in the marijuana industry, and profiting from a high price tag is something Sundial management may not be able to resist. On December 30, 2020, the company announced it was acquiring a special purpose vehicle that held C $ 58.9 million in senior debt from a cannabis producer. Zenabis Global. Prior to the closing of the transaction, Sundial said its liquidity stood at C $ 110 million. And in the nine-month period ending September 30, 2020, the company spent C $ 45.3 million on its daily operating activities. The increase in its cash reserves will be crucial to ensure the stability of the company in the long term.
Should you buy Sundial shares?
It can be tempting for investors to jump on the Sundial bandwagon, especially if the stock continues to rally. But the danger is that even if Sundial shares rise due to this recent market volatility, those levels will not be sustainable for a long time. It’s still a company with big question marks: the fact that net sales of C $ 47.1 million in its last three quarters fell 3.6% from the previous year is just an alarm signal. And during that time, Sundial suffered operating losses of C $ 151.5 million, nearly five times the losses of C $ 31.2 million a year earlier.
Stock is a risky buy, and adding more volatility to the mix only makes it worse. Investors had better wait until things calm down in the markets and this recent trading spike subsides before making an investment decision. Buying into this artificial rally could expose investors to big losses.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.