Last week, Sundial Growers Inc. (Nasdaq: SNDL) released first quarter financial and operational results and we are not surprised by how the market response to the numbers.
During the quarter, the Canadian cannabis company reported an adjusted EBITDA loss of $700,000 and less than $20 million of revenue. Although total revenue increased by approx. 75% (on a year-over-year basis), we believe the business is overvalued.
Prior to the earnings report, Sundial’s market capitalization was more than $1 billion and is currently higher than other high-profile Canadian Licensed Producers (LPs). At current levels, the business is valued higher than the combined markets capitalizations of Aurora Cannabis Inc. (Nasdaq: ACB) (TSX: ACB) and HEXO Corporation (Nasdaq: HEXO) (TSX: HEXO).
Sundial attributed the adjusted EBITDA loss in the first quarter to central bank interest rate changes and fair value adjustments from its SunStream joint venture. We believe the name of the game for the Canadian cannabis company is profitability and will are not sure if the management team can achieve this goal.
After Sundial reported first quarter financial results, several broker-dealers lowered its respective price target on the business which we have highlighted below:
- BMO lowered its price target to $0.50 from $0.70
- Canaccord Genuity lowered its price target to $0.50 from $0.60
- Cantor Fitzgerald lowered its price target to $0.48 from $0.97
Going forward, we will monitor how Sundial continues to perform and expect its acquisition of a large Canadian cannabis retailer to play a key role with the growth of the business. We expect the acquisition to have an immediate impact on the revenue that is generated by the entire business but remain cautious with the near and long-term outlook.
If you are interested in learning more about Sundial’s earnings report, please send an email to firstname.lastname@example.org with the subject “Sundial Reports First Quarter Earnings” to be added to our distribution list.