Why Did Solid Earnings Get a Poor Reaction? Sundial Stock: Why Did Solid Earnings Get a Poor Reaction?

Why Did Solid Earnings Get a Poor Reaction? Sundial Stock: Why Did Solid Earnings Get a Poor Reactio ...

Sundial Growers (SNDL) - Get Sundial Growers Inc. The Reportlong-awaited Q4 earnings were released on April 27th. The next day, the company held its earnings call.

Although the results appeared to be satisfactory, the markets'' reaction was not positive. Here, you should look deeper into Sundial''s earnings and discuss investors'' responses to them.

Why Did Solid Earnings Get a Poor Reaction? Figure 1:Sundial Stock

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Decent Q4 Earnings, but...

Sundial, a Canadian cannabis company, reported $17.7 million in net income in the fourth quarter, indicating a 63% increase in YoY. However, the company closed the year with $56.1 million in net revenue, which indicated a 8 percent decrease.

Net losses from continuing operations in Q4 were $45.6 million, a sign sign up for a drop from the $49.8 million experienced by SNDL in the same year last year. However, when we zoom out to the full-year scale, we get a less rosy picture. Sundial reported $178.85 million in net losses for 2021, but only $160.2 million in net losses in 2020. This means that the company''s losses are steepening.

According to Sundial, the increase in net losses in 2021 was primarily due to unrealized losses on marketable securities, mainly due to fluctuations in the share price within the cannabis-related investment portfolio.

Sundial completed 2021 with a record adjusted EBITDA of $24.9 million. That compares to a $19.8 million EBITDA loss in the previous year. And perhaps even more important is the $850 million in cash Sundial has on its balance sheet. It is quite a half of a billion of that, and the company has the financial capabilities it needs to pursue its strategic growth goals.

...A Poor Market Reaction

At first glance, the results of the SNDL in the fourth quarter were satisfactory. However, the stock slowed about 6% in the trading session following the results release; then the SNDL slowed another 7% the following day. The markets'' negative reaction may be explained by a few factors.

First, it was reported that marijuana sales in the United States fell under YoY for the first month of 2022. For the time being, this is apparent that eliminating pandemic restrictions are putting a damper on marijuana purchasing.

Sundial''s IPO was planned for the first quarter of 2022, but another issue has yet to be resolved.

Sundial will not meet Nasdaq compliance standards, putting the stock exchange on the rise for ten consecutive trading days. However, it will need to trade above $1 per share for avoidance of any potential delisting from the tech-affected American stock exchange.

SNDL shares haven''t reached $1 even once in the last 180 days, but in mid-November, the stock closed, reaching 92 cents, and in March of this year, news on cannabis legislation, shares reached 881 cents. With strong headwinds hitting growth and speculative stocks, Sundial shares have remained around half a dollar for several weeks now.

Sundial has been given another 180 days to try and achieve $1 per share recently after once again failing to meet the Nasdaq deadline.

Thanks to retail investors, there is no longer going to be much longer a defense.

Sundial''s business has developed a more steady growth pattern since the beginning. CEO Zach George of Sundial Growers has issued a letter to the company''s shareholders, which detailed the trajectory of Sundial''s business.

Sundial was founded after undergoing a "broken" initial public offering, which included a host of internal and external difficulties, including excessive leverage and lack of cost control. This situation required a restructuring plan.

Sundial''s CEO said the company was considered a meme stock in 2021, and that the trading volume of SNDL shares was increased by roughly 3 billion per day in the first quarter of 2021. Sundial''s retail support helped in the move up to $1.2 billion between 2020 and mid-2021, and that support was crucial to transforming the company''s business.

According to George, the meme trading phenomenon was influenced by a variety of factors, including stimulus-funded pandemic spending and commission-free platforms such as Robinhood. Despite the CEO''s conviction, his business''s success was attributed to retail investors trading through the Robinhood platform. Despite the CEO, he criticised the broker for its practice of payment per order flow, which he believes "encourages [public] the aggressive churning of trading accounts and short-term thinking."

The CEO said Sundial Growers'' next steps will be based on two key themes:

(1) Core business cannabis operations: much work has been done on improving both efficiency and cultivation quality. Sundial believes that it has "flower quality [that stands up against any competitor."

(2) Sundial''s investment portfolio is comprised of the SunStream Bancorp joint venture, through which cannabis businesses will be lending opportunities, which will generate cash flow that, as George colorfully describes, will be "mother''s milk" for the wider industry.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Anselm may also include affiliate links. These partnerships do not influence editorial content. Thanks for the support of Wall Street Memes)

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