SNDL (SNDL -2.50%) is a cannabis company that has been aggressively expanding in the past few years. It acquired liquor company Alcanna in 2022, and it has made acquisitions to expand its marijuana operations, including the purchase of Spiritleaf nearly two years ago. Most recently, in January, it also closed on cannabis extraction company Valens.
But while SNDL has gotten bigger and its operations more diverse, that has failed to sway investors. In the past year, shares have fallen more than 66%, and the pot stock is down 80% from its 52-week high of $8.91. Are investors overlooking what could be an underrated growth stock, or is SNDL likely to head even lower in value?
The company remains unprofitable
Thanks to the company's acquisitions, SNDL's revenue has been skyrocketing. In its most recent earnings report, released in November 2022, the cannabis company reported revenue totaling 230.5 million Canadian dollars, for a year-over-year increase of 1,501%. That was for the period ending Sept. 30, 2022, and the numbers look incredible because a year earlier, SNDL's results didn't involve liquor retail, which today makes up the bulk of its revenue -- due to the Alcanna acquisition.
But despite all that growth, the company still reported a net loss of CA$98.8 million. The cannabis retail segment of its operations weighed down the bottom line significantly as it incurred a loss of CA$84.8 million for the period, more than offsetting the CA$10.7 million profit that liquor retail generated.
The risk of dilution remains high
A big problem with SNDL over the years has been that its share count has risen significantly. And as the number of shares outstanding rises, that dilutes existing shareholders' positions and leads to a lower share price.
SNDL Shares Outstanding data by YCharts
While there hasn't been a big spike in shares outstanding, there's still a risk that SNDL will need to raise more stock in the future. And that's because the company's cash flow still isn't all that strong.
Although there has been improvement in recent quarters, SNDL's operating cash flow has often been volatile -- and negative. A big test will be whether, in its upcoming quarterly results, which should come out next month, the company will be able to build off its recent positive cash flow. If it does, that would be a great sign that the business may finally be on the right path.
SNDL Cash from Operations (Quarterly) data by YCharts
Why I still wouldn't buy SNDL's stock
SNDL's stock may look cheap, but this is still a company in the midst of a transition, and it's too early to tell how well all this wheeling and dealing will pay off for the business. Its operations aren't profitable, and as long as there are questions about whether it can be cash-flow positive, there is a danger that it will still need to issue shares in the future to help fund all its businesses. And that could put pressure on the stock and lead to an even lower share price and greater losses for investors. I'm not convinced that the stock has bottomed out.
At the very least, investors would be wise to wait until the release of SNDL's year-end results before making a decision on the pot stock.
