Investing in the cannabis sector requires lots of patience. Stocks can go up or down significantly just based on what's happening with efforts to legalize marijuana all over the world. In the case of licensed producer Sundial Growers (SNDL -1.59%), it also became a meme stock this year, growing in popularity with retail investors. That made it an even more volatile investment to hold on to.
But now that the excitement has calmed and Sundial's stock looks to have stabilized, it's worth a look back to see where it stands after all that noise. Has the stock proven to be a good buy this year, and more importantly, is it an investment you should own heading into 2022?
You would be up over 20% right now
At the end of 2020, shares of Sundial Growers were trading at just over $0.47. At that price, a $10,000 investment would have allowed you to buy 21,119 shares of the business.
If you had been lucky enough to sell at the peak when the stock soared to a high of $3.96 on Feb. 11, you would have received more than $83,630 for your shares, resulting in a profit of over $73,000 in less than two months. But few people are lucky enough to sell at the peak, and long-term investors may not even have noticed the sudden (and brief) spike in Sundial's share price.
Holding on to the stock today, you would still be sitting on a profit, but at a price of around $0.57, your investment wouldn't be nearly worth as much at about $12,000. Although that's a much more modest $2,000 profit, it's still better than you would've done with the average pot stock on the Horizons Marijuana Life Sciences ETF that's down 16% this year. It also wouldn't be far behind the S&P 500's returns of around 23%.
Why has Sundial been a better buy than its peers?
Sundial's growth hasn't been remarkably better than that of its peers. Until recently (and aided through acquisitions), the company's top line was falling and struggling to go anywhere but down.
But there are a couple of reasons I can point to as to why Sundial has been a more attractive option for cannabis investors.
The first is that the company reported a positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profit not once but twice this year. Adjusted EBITDA is a hot topic in the sector, as it's what many cannabis companies strive to achieve, even top Canadian pot producers Aurora Cannabis and Canopy Growth continue to work toward that.
Another reason is that investors have hope that the business will be stronger. Through multiple acquisitions this year, Sundial has been working on transforming its business. In October, it announced the acquisition of liquor store operator Alcanna, which owns more than 170 stores in Canada. It also has a controlling interest in Nova Cannabis, a cannabis company that owns 60-plus pot shops in Canada. Together, with Sundial's acquisition of Spiritleaf earlier this year, it will have over 170 pot shops in its portfolio to go along with nearly an equal number of liquor stores. Just through these two key acquisitions (Alcanna may not close until early next year), Sundial's business has been transformed from being a struggling pot producer to one of the top retail pot stocks in the industry. That turnaround and the potential the stock possesses are likely big reasons why investors remain bullish on Sundial's future.
Is Sundial a good buy heading into 2022?
Sundial Growers is your typical high-risk, high-reward investment. If all goes well next year, it's possible shares of Sundial could double in value. But if the company continues to struggle or its losses mount due to these acquisitions, investors could be in for a tough year, especially if the cannabis sector underperforms as well.
Unless you are OK with taking on that risk, I'd suggest staying on the fence here. With too many uncertainties ahead for Sundial and the stock market being volatile of late, this is not an investment I'd feel comfortable holding heading into the new year.