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Better Meme Stock: AMC or Sundial Growers?

By Keith Speights - Jun 17, 2021 at 5:52AM

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Both companies should have brighter days ahead.

Meme is the theme so far this year, as investors can't seem to get enough of meme stocks. AMC Entertainment (AMC -0.94%) and Sundial Growers (SNDL 5.67%) stand out as two of the biggest winners.

AMC stock has absolutely exploded with a year-to-date gain of more than 2,500%. Sundial's shares soared more than 500% by early February. Although the marijuana stock has fallen quite a bit since then, it's still up more than 100% this year.

Which of these two meme stocks is the better pick now? Here's how AMC and Sundial stack up against each other.

Smiling person holding a smartphone with images of dollar signs appearing over the phone.

Image source: Getty Images.

The case for AMC 

Few companies were hit as hard by COVID-19 as AMC. The company closed most of its theaters around the world and its revenue nosedived. AMC was forced to furlough many of its workers and cut costs significantly in other ways, as well.

However, the worst definitely appears to be in the rearview mirror for AMC. As of March 31, 2021, 99% of its U.S. theaters were again open for business. Moviegoers are steadily returning to those theaters.

AMC should continue to benefit as more people across the world receive COVID-19 vaccines. CEO Adam Aron said in the company's Q1 conference call, "I watch those vaccination statistics closely all the time because, let's say what it is, vaccination is our way out of all of this."

New movie releases should help, too. For example, Disney plans to debut several likely hits in the coming months, including the latest Marvel movie, Black Widow. The sequel to Tom Cruise's 1980s blockbuster Top Gun is also on the way later this year from Paramount, as are several potential audience favorites from other studios.

Meanwhile, AMC has taken advantage of its rising share price to raise more cash by issuing new stock. The company ended the first quarter with more than $1 billion in liquidity -- the highest level in AMC's 101-year history. AMC appears to be in a solid position to weather the rest of the pandemic.

The case for Sundial Growers

Sundial Growers has faced its fair share of problems, as well, although not to the extent that AMC has. The company's cannabis revenue continued to decline in the first quarter of 2020, due primarily to headwinds in the Canadian retail cannabis market.

Like AMC, though, Sundial could have better days in store. The increased availability of COVID-19 vaccines in Canada should help boost the country's retail cannabis market. Sundial's management team has also taken steps to improve its fortunes. 

In particular, Sundial is now prioritizing the premium cannabis market. The company has invested in increasing the THC content of its cannabis products and achieving more consistent quality levels. These efforts could pay off with higher sales and profit margins.

The most ambitious move by Sundial's management team, however, is its focus on the company's investments. Sundial has been busy wheeling and dealing in recent months, including acquiring cannabis retailer Inner Spirit and buying a stake in cannabis-extraction company Valens

Thanks mainly to its investment activities, Sundial even reported positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in Q1. Look for the company to make even more deals in the not-too-distant future, potentially in the U.S. market.

Better meme stock?

The underlying businesses of both AMC and Sundial seem likely to improve this year and into 2022. However, we haven't talked about the stocks' valuations yet -- and there's a stark contrast on that front.

AMC's shares currently trade at 25 times trailing-12-month sales. That's more than twice the price-to-sales (P/S) multiple for Sundial. I fully expect this gap to narrow as the return of moviegoers boosts AMC's revenue. But with Sundial's revenue probably on a path to grow also, I'm not sure exactly how closely the two stocks' valuations will converge.

Over the longer run, my take is that Sundial has the greater opportunity to grow. That's especially the case if the company is able to successfully expand into the U.S. cannabis market down the road. 

I think that the nod between these meme stocks goes to Sundial, because of its better long-term growth prospects and current valuation advantage. However, my view is that there are plenty of even better stocks to buy right now that offer more attractive risk-reward propositions than either AMC or Sundial.

Keith Speights owns shares of Walt Disney. The Motley Fool owns shares of and recommends Valens GroWorks Corp. and Walt Disney. The Motley Fool recommends Valens GroWorks. The Motley Fool has a disclosure policy.

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Stocks Mentioned

SNDL Inc. Stock Quote
SNDL Inc.
SNDL
$3.17 (5.67%) $0.17
The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$124.26 (2.21%) $2.69
AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
AMC
$24.21 (-0.94%) $0.23
The Valens Company Stock Quote
The Valens Company
VLNCF
$1.20 (13.21%) $0.14

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

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