Robinhood investors like penny stocks. Of the top 100 most popular stocks on the trading platform, 13 currently trade at less than $5 per share, meeting the definition of a penny stock.
But which of these two high-flying Robinhood penny stocks is the better pick now?
The case for Sundial Growers
Let's first acknowledge that Sundial faces some challenges. There has been significant price compression in the Canadian cannabis market. Sundial's cannabis net revenue continues to decline.
However, the company achieved something in its first quarter that several major Canadian marijuana growers have yet to do: It generated positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Sundial's cost reduction initiatives seem to be paying off.
Sundial Growers has also racked up successes with its investment activities. In Q1, the company recorded revenue of 2.8 million Canadian dollars from interest and fees related to loans to third parties, plus CA$12.9 million in investment gains. Expect more investment deals in the future from Sundial's joint venture with SunStream Bancorp.
The company is also expanding through acquisitions. In May, it announced plans to acquire Canadian cannabis retailer Inner Spirit for around CA$131 million. Inner Spirit operates 19 of its own stores and supports 67 franchise locations.
Sundial should experience sales growth thanks to the Inner Spirit deal and improving conditions in the Canadian cannabis market. The company's investments could also pay off nicely over the long run. Both are reasons why many investors have their eyes on this hot pot stock.
The case for Zomedica
Like Sundial, Zomedica remains unprofitable. However, that's to be expected considering the company only recently launched its first product. The good news for Zomedica is that this product, Truforma, could be a big commercial success over the long run.
Truforma is a shoebox-sized device used to run point-of-care diagnostics tests for cats and dogs in veterinary clinics. Zomedica currently supports a handful of assays for the Truforma platform, including one that helps veterinarians diagnose adrenal disease in dogs. The company is developing more assays.
Zomedica made only a little over $14,000 in sales in the first quarter. However, Truforma is still a fairly new device on the market, and the company is still building out its sales team. It's also looking to increase its licensing and acquisitions deal-making, and recently hired healthcare industry veteran Greg Blair to lead its business development efforts.
Pet ownership in the U.S. is increasing. As a result, the veterinary care market that Zomedica is targeting should continue to grow. Robinhood investors aren't the only ones interested in Zomedica. Big money managers are also investing in the stock, betting that the company could be a winner in veterinary care.
Better Robinhood penny stock?
I think that both Sundial Growers and Zomedica could enjoy improving fortunes over the next few years. If I had to pick one of these penny stocks, though, I'd go with Zomedica.
My primary reason is that Zomedica's less likely to dilute its shareholders in the near term by issuing new stock than Sundial is. The company reported a cash stockpile of $276.6 million as of March 31, and booked a net loss of $4 million in the first quarter. Sundial had a cash position of CA$1.08 billion as of May 7, but it posted a net loss of CA$134.4 million in Q1.
While Zomedica gets the nod over Sundial in my opinion, I don't think that either of these stocks is a great pick for most investors. Both Sundial and Zomedica are highly risky. My view is that there are plenty of other stocks that offer more attractive risk-reward propositions.