Sudden fame is never easy. Such is the situation faced by previously obscure Canadian marijuana stock Sundial Growers (SNDL -5.31%). But never mind renown; we're concerned about whether the company is a worthwhile investment.
In this video clip from Motley Fool Live, recorded on March 12, veteran Fool contributor Eric Volkman gives his take on Sundial, in a discussion with healthcare and cannabis bureau chief Corinne Cardina.
Corrine Cardina: Edward asked, "I have seen most Motley Fool analysts do not think Sundial as a good buy, but lately one analyst thinks it could possibly be. Do you have any comment?"
And just to set up the question a little bit more, this cannabis stock has kind of become a favorite among certain investors on Robinhood. It's also popular in the Reddit investing community. There's been a little bit of news, analyst-wise -- analysts are mixed on it. Recently an analyst at BMO Capital Markets lowered her rating, citing valuation concerns.
Do you think that the kind of meme-Gen Z-Reddit investors have created a bubble here, and what should our audience know about Sundial?
Eric Volkman: I don't know about a bubble. I mean, WallStreetBets and that whole crowd, they're essentially contrarians. Basically, like famously with the whole GameStop incident, they were like, ''OK, everybody hates this stock, we're going to try to pump it up.'' And you had a situation there where they could, if they got enough momentum -- which they did -- they could create a short squeeze and push that stock well higher.
I think that's a unique case and I don't think you have the same situation with marijuana stocks, Sundial included, because first of all, you've never really had -- to my knowledge -- that much short interest in very many of them. Sundial included.
I remember checking a couple of weeks ago when that whole fire started to burn with Sundial and being kind of surprised that the short interest was only something like, it was in the single digits I think, it was something like 7%.
Cardina: Today the short percent of float is 11%.
Volkman: Yeah, it was kind of around that, that doesn't make it a compelling... I mean, GameStop was something ridiculous, like 250% which is, somebody is going to have a problem there. But Sundial [is at] 11%. So that wasn't really a short-squeeze play.
I think the Redditors, basically the reason they tried to uncover that is that Sundial, it was cheap. It was at the time, I think, it was trading under a dollar, they had issues with listing on Nasdaq because Nasdaq requires you to have, I think, [a] trailing six-month average stock price of at least a buck so they were kind of floating up and down the water there.
I think that was mainly the reason. I think people liked to talk it up in the hopes that it would go up even just a little bit. If you bought stock for a dollar per share and it goes up $0.20, well that's 20% you made, so I think that was more like a pumping up attempt.
Cardina: A penny-stock pile-on to try to push it up.
Volkman: Yeah. Basically, I mean, I'm not sure I would go that far but it does have aspects to that kind of behavior. [Also] it wasn't a particularly well-known company. So that helped, too. Like, "Oh, people aren't noticing this crazy weed stock from Canada that's $0.40 a share." So a lot of that was... I don't think fundamentals came into play at all in this.
Sundial as a company in terms of fundamentals -- what we need to keep in mind with Sundial right now, they're a company in transition. They had been active in the wholesale market and then they had kind of been trudging sort of behind a lot of peers, they weren't profitable, growth was not impressive. So their idea is to transition to a more retail model, which makes sense, I mean, it's still a young industry, a very young company, pivots happen.
The thing is, they're unproven. It really didn't work that well with the whole wholesale approach so, they don't have the track record of success, quite frankly, or that much success. I don't know if this transition is going to work. It's very much a gamble, Sundial. That's one reason why it's been cheap.
But the WallStreetBets crowd, they have power and Sundial is still on a lot of people's radar. I don't think their 15 minutes of fame is done quite yet but in terms of fundamentals, looking at that, I find them quite uninspiring.
I think it's very much a wait-and-see on return in business strategy so I would tend to go along with the more bearish analysts on this one.