These Analysts See More Downside Ahead For Sundial Growers Stock

Cannabis company Sundial Growers Inc SNDL was among the few "meme stocks" that skyrocketed in recent weeks but as the stock has shed more than 50% of its value in the past month, two analysts continue to model more downside ahead.

The Sundial Growers Analysts: BMO Capital Markets analyst Tamy Chen downgraded Sundial Growers from Market Perform to Underperform with a price target lifted from 30 cents to 40 cents.

Cantor Fitzgerald analyst Pablo Zuanic initiated coverage of Sundial Growers with a Neutral rating and a $1.15 price target.

BMO's Sundial Thesis: Shares of Sundial peaked near $4 and are now trading at around $1.32. This still represents a 340% increase over the past six months and doesn't support the company's fundamentals, Chen wrote in the note.

The company's recent third-quarter report showed a 30% quarter-over-quarter decline in recreational cannabis sales while the broader industry showed a low double-digit growth rate. Chen said an appropriate multiple on Sundial's stock is 3.5 times 2022 sales estimates yet shares are trading at 28 times.

"SNDL needs to demonstrate more consistent top-line momentum to ease concerns that there is soft consumer traction for its products," Chen wrote.

Cantor's Sundial Thesis: Sundial Growers' stock had gained 21 times in value amid the "meme stock" explosion in early 2021 yet the cannabis company's mixed fundamentals hasn't changed, Zuanic wrote in the note. On top of declining sales in the third quarter, Sundial was shedding market share.

The company took advantage of its soaring stock and lifted its cash position to CA$700 million at the end of February. This could position management to seek out a "defensive" M&A deal within the quickly consolidating cannabis space.

Regardless of any future activity, the stock's volatility and current valuation make it "difficult to take an active position in the stock," the analyst wrote. Shares are trading at 43 times EV to current sales and this is a notable premium versus the peer group average in the teens.

On the other hand, shorting the stock is "risky" given retail investors' ongoing speculation, the potential for a strategic or accretive acquisition, and the improved balance sheet position.

SNDL Price Action: Shares of Sundial Growers were trading lower by 5.8% at $1.31.