SNDL Stock Reverse Split: Is It “Game Over”?
Sundial producers‘ (SNDL) – Get the report from Sundial Growers Inc. The reverse stock split soap opera is finally over. After months of trying to meet Nasdaq’s minimum share price requirement, shareholders have approved a plan to complete a stock split. It entered into force on June 26.
But even with SNDL trading above $2 per share, the reverse split caused an immediate 25% drop.
Although the reverse split has been poorly received by the market – as expected – it is still not “game over” for Sundial. Here’s why.
(Learn more about Wall Street memes: Stock GameStop: short sellers take a beating in July)
The “least bad” choice
At the company’s annual meeting of shareholders, the Sundial Growers board got the votes it needed to execute a 10-to-1 reverse stock split. This involves merging the company’s stock, forcing a decrease in liquidity and a commensurate increase in the share price.
It should be recalled that Sundial management diluted 105 million shares in 2020, to over 2 billion shares in 2021. As a result, SNDL became a penny stock, hovering around $1 per share.
In order to stay on the Nasdaq, stocks must trade above $1 per share for 10 consecutive trading days. With Sundial shares trading at 30 cents, SNDL was at risk of delisting.
Although the company was given another chance to meet the Nasdaq requirements by August 8, the truth is that only a miracle would have sent SNDL above $1 under current market conditions.
The stock split was certainly the “least bad” choice management could have made to keep the stock on the Nasdaq. If delisted, it would be limited to over-the-counter (OTC) trading on a decentralized market.
This would have led to default risks, as well as a lack of transparency due to liquidity issues and large bid/ask spreads, which would have made SNDL very difficult to trade. .
Short sellers are on the prowl
Even though cannabis stocks have fallen sharply so far this year, recent data from a report by S3 Partners shows that short-term interest in cannabis stocks has waned.
As for the industry’s top Canadian and U.S. companies, short-term interest plunged from $3.14 billion in May 2021 to $1.57 billion in December 2021, to $632 million today. today.
Additionally, the report shows that approximately 57% of short selling in the cannabis sector is concentrated in two companies, Tilray (TLRY) – Get the report from Tilray Brands Inc. and canopy growth (GCC) – Get Canopy Growth Corporation report. Sundial Growers is third on the list. See below:
Sundial’s short interest rose in June on anticipation of the reverse stock split. At the end of May, 217 million shares were sold short, while the most recent figures indicate that this number has increased to 228.58 million shares.
This corresponds to 9.5% of the stock’s free float, which is considered quite high.
Is SNDL still a good investment?
Even though the market generally frowns on reverse splits, technically they don’t change the value of company fundamentals.
On August 11, Sundial will release its second quarter (Q2) results. We may be able to see progress in transforming Sundial’s business, including the acquisition of alcohol retailer Alcanna.
Although headwinds are likely to put pressure on cannabis market margins, for the second quarter Sundial is expected to record revenue of $162.9 million, which would represent an increase of more than 2,000% over compared to the same period last year.
According to Frederico Gomes, an analyst at ATB Capital Markets, Sundial’s fundamentals make its stock a good opportunity to profit from the Canadian cannabis market. That’s thanks to Sundial’s diversified portfolio, which offers the best risk-return alternative in the industry, and a strong balance sheet, which gives it a defensive edge.
(Disclaimer: This is not investment advice. The author may own one or more stocks mentioned in this report. Additionally, the article may contain affiliate links These partnerships do not influence editorial content. Thank you for supporting Wall Street Memes)