Sundial Growers News and Forecast: SNDL stock clings to October 6 support


  • SNDL shares could drop about 18% to $0.50 if current support fails to hold.
  • Sundial announced a share repurchase agreement in October.
  • Kentucky has two bills that could decriminalize cannabis.

Sundial Growers (SNDL) stock dropped another 1.2% to $0.6042 on Wednesday in mid-session. This arrives after the 2.1% fall in Tuesday's session that saw higher than normal volume. SNDL stock has dropped about one-third since mid-November.

Sundial Growers (SNDL) Stock News: Kentucky state rep. moves to legalize cannabis

Kentucky State Rep. Nima Kulkarni (D) has filed bills that would work to legalize cannabis in the Appalachian US state. The first bill would decriminalize the growing and sale of small amounts of marijuana. The second bill would allow those over 21 years of age to possess, buy or sell up to one ounce of marijuana and grow as many as five plants for personal use.

In October, Sundial announced an unexpected share repurchase agreement that would allow the company to purchase up to C$100 million worth of shares. The announcement briefly touched off a bit of excitement with shares rallying more than 20%. Now that the excitement has subsided, SNDL stock has fallen back to the low $0.60 range.

A share repurchase agreement is somewhat hilarious since Sundial is the king of dilution. In its recent third-quarter filing, Sundial showed that it has approximately 20 times more shares outstanding than it did one year ago – a mind-boggling number. This is much worse than Greek shippers during the Great Financial Crisis.

The share repurchase agreement does give investors some glimmer of hope. While cannabis majors struggle to turn a profit, Sundial was able to go black, earning C$10.3 million on the quarter.

The enormous dilution story has to do with Sundial endeavouring to become a takeover king. Using its own shares as currency, it bought Canadian liquor distributor Alcanna for C$346 million. Besides the liquor business feeding into Sundial's bottom line, Alcanna's two-thirds ownership of Nova Cannabis bodes well for revenue growth. Nova Cannabis owns more than 60 cannabis retail shops in Canada.

SNDL key statistics

Market Cap $1.3 billion
Price/Earnings 5
Price/Sales 25
Price/Book 1
Enterprise Value $737 million
Operating Margin -142%
Profit Margin

0%

52-week high $3.96
52-week low $0.42
Short Interest 15%
Average Wall Street Rating and Price Target Hold, $1.01

Sundial Growers (SNDL) Forecast: October 6 must hold or stock heads to $0.50

SNDL shares are currently sitting on long-term support from October 6 just above $0.61. The announcement of the repurchase agreement sent the stock up near $0.95 on two successive sessions in mid-November. Sundial is now down a solid 35% from there.

If SNDL breaks this level to close below $0.60, then $0.50 is the next support. The stock danced around this level from December 2019 through January 2020. Tuesday saw a brief low below October 6, so expect the break lower to happen again.

The 20-day moving average crossed over the 9-day moving average at $0.71 on Monday. This makes that level the price to beat in order to get bullish on SNDL. Abover here is only the mid-November swing high at $0.95 where the stock faced resistance two sessions in a row.

SNDL 1-day chart


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