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Why Sundial Growers and SunPower Sank in the Nasdaq's Thursday Stumble

By Dan Caplinger - Feb 18, 2021 at 1:34PM

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Many top stocks saw reversals of fortune in a weak market.

Thursday was a tough day for the stock market, and the Nasdaq Composite (^IXIC 3.34%) took an outsize hit. Concerns about the future for the U.S. economy amid mixed data sent stocks broadly lower. As of just before 1 p.m. EST, the Nasdaq was down more than 1%.

Some of the best performers in the Nasdaq recently took even more damage on Thursday. Sundial Growers (SNDL 5.41%) and SunPower (SPWR -0.74%) have done extremely well over the past several months, but they were among the worst performers today. Let's look more closely to see what's happening with these stocks.

More shares, less value

Shares of Sundial Growers fell 7%, adding to losses earlier in the week. Even though the marijuana stock got good news from the Nasdaq earlier this week, shareholders aren't happy about the price they'll pay in order to achieve those results.

Greenhouse with cannabis plants and circulating fans.

Image source: Getty Images.

Sundial was in danger of violating the conditions under which its stock was listed on the Nasdaq. Throughout most of 2020, Sundial shares had fallen below the $1 price level, and that ran counter to minimum bid price rules the Nasdaq imposes on its listing companies. However, the Nasdaq didn't seem to be in any big hurry to enforce that rule last year, and with the recent spike in Sundial's price, the company regained compliance with the $1 per share rule, staying above that mark for 10 straight days.

However, investors weren't happy when Sundial said Wednesday that it would file a registration statement with the U.S. Securities and Exchange Commission to sell as much as $1 billion in stock or other investment securities. The shelf registration doesn't mean a sale is imminent, but it does indicate that Sundial can act at any time once the filing becomes effective.

Sundial has made a habit of issuing new shares to raise capital. Until it starts seeing actual growth in its fundamental business, investors have to be prepared for a further pullback from here.

Heading into the shade

Elsewhere, shares of SunPower were lower by 14%. The stock led several other solar power companies lower, including a 7% decline for microinverter specialist Enphase Energy (ENPH -1.14%) and a nearly 10% drop for Sunrun (RUN -0.55%).

The hit to SunPower came after its release of fourth-quarter financial results. At first glance, investors would've thought that SunPower did well, posting a 65% increase in commercial and industrial installations compared to the third quarter and adding 13,000 new residential and light commercial customers. Yet revenue from the quarter overall was down 15% year over year, and earnings per share of $0.14 fell almost 40% from the year-ago period.

Not even some fairly upbeat guidance was enough to make SunPower investors happy. The solar company sees revenue growth of 35% in 2021, with a 25% expected rise in megawatt-capacity recognized. 2022 could bring even stronger growth, with SunPower seeing adjusted pre-tax operating earnings rising at a pace of more than 40% due to anticipated extensions of federal subsidies and other support.

The boom in the solar sector has led to highly stretched expectations from investors, and that explains why even a fairly upbeat report got a less than favorable reception. Even with today's drop, SunPower shares now fetch 10 times what they did less than a year ago, and that means that further downside is possible unless the solar company can prove superior business execution as 2021 progresses.

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Stocks Mentioned

Sundial Growers Inc. Stock Quote
Sundial Growers Inc.
SNDL
$0.39 (5.41%) $0.02
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$11,607.62 (3.34%) $375.43
SunPower Corporation Stock Quote
SunPower Corporation
SPWR
$17.36 (-0.74%) $0.13
Enphase Energy, Inc. Stock Quote
Enphase Energy, Inc.
ENPH
$198.39 (-1.14%) $-2.28
Sunrun Inc. Stock Quote
Sunrun Inc.
RUN
$25.22 (-0.55%) $0.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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