Sundial Growers (SNDL -6.58%) is one of the cannabis industry's most popular meme stocks. It doesn't need strong earnings numbers to generate bullishness, and there's often a large disconnect between the company's fundamentals and its valuation. It's not unlike the situation with other meme stocks, including movie theater chain AMC Entertainment (AMC -0.88%) and video game retailer GameStop (GME -6.01%).
All three stocks are up over 25% in just the past month. But without the fanfare that typically accompanies those other stocks, is Sundial the riskier investment to be holding right now? Below, I'll use three charts to help answer that question.
1. The swings haven't been as wild for Sundial
A good way to gauge volatility (and popularity) in a stock is by looking at its 30-day average volume. Although there has been a steep 63% drop-off in Sundial's trading volumes over the past year, the movement during that time has been relatively stable compared to AMC and GameStop.
However, this only offers us a glimpse of how it has performed in the past and just how erratic the stock can be. Another factor worth considering is how many people are shorting or betting against the stock right now.
2. Short interest in Sundial has fallen
As a percentage of float, short interest in Sundial has also been declining. And at less than 12%, it's well below the more than 20% that both AMC and GameStop are at today. The number of people shorting a stock can put downward pressure on its share price. On the flip side, there's also a potential for a short squeeze to happen, which is when short-sellers need to cover their positions, leading to a sudden surge in price.
Sundial appears to have less exposure to short-sellers right now than AMC and GameStop do, and that trend has stayed fairly consistent over the past year. Another factor to consider is the relative valuation of these stocks, as a large disconnect between valuation and performance can also make a stock vulnerable.
3. Sundial trades at a much higher premium
At a price-to-sales (P/S) multiple of 28, Sundial's stock looks obscenely overvalued today. By comparison, AMC and GameStop trade only in the single digits and are nowhere near the premium that Sundial's stock is at right now.
Normally, investors will pay a premium for a stock that has been growing at a fast rate or has some competitive advantage that will ensure future profit growth. That isn't the case with Sundial, as the business has been struggling to grow and is deep in the red, with losses totaling 240 million Canadian dollars over the past 12 months.
The stock is a bit of a riskier buy due to its price tag
Between the decrease in trading volumes and less exposure to short-sellers, Sundial's stock looks less likely to go on wild swings in the foreseeable future as there appears to be less interest in the stock. However, its hefty P/S multiple suggests that it could still see a big movement in one direction: down. And that makes the cannabis stock a riskier buy overall.