Is Sundial Growers' Stock Overvalued Or Undervalued?

Sundial Growers Inc SNDL shares have outperformed the S&P 500 in 2021, generating a year-to-date total return of 39.9%.

Sundial’s stock has had a wild ride in 2021, but investors may be wondering whether there’s any value to be found in Sundial shares.

Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.

For comparison, the S&P 500’s PE is currently at about 34, more than double its long-term average of 15.9. Sundial doesn’t currently have a PE ratio because the company is not profitable. In the most recent quarter, Sundial reported a net loss of $52.2 million.

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Growth: Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 20.3. Unfortunately, analysts are not expecting Sundial to turn a profit over the next four quarters. The current consensus earnings per share estimate for Sundial for 2022 is zero. Sundial’s health care sector peers are currently averaging a 16.3 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren't everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is about 1. Once again, without positive earnings, Sundial doesn’t have a positive PEG ratio to use as a valuation gauge.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is 3.14, well above its long-term average of 1.62. Sundial’s PS ratio is 35.6, more than 11 times higher than the S&P 500 average. Sundial's PS ratio is also up 3,800% over the past year, suggesting the stock is priced at the high end of its historical valuation range.

Finally, Wall Street analysts do see some value in Sundial stock over the next 12 months. The average analyst price target among the four analysts covering Sundial is 78 cents, suggesting about 16.5% upside from current levels.

The Verdict: At today's price, Sundial stock appears to be extremely overvalued based on a sampling of common fundamental valuation metrics.