Insights

4 Surprises From Sundial’s Q4 Earnings Report

Cannabis producer Sundial Growers (NASDAQ: SNDL) has been undergoing many changes over the past year. Meme hype allowed it to raise significant capital and gave it the confidence to be more aggressive by taking on multiple acquisitions. As a result, the company’s accountants were busy doing year-end work, and the business had to delay the filing of its latest earnings results until just this past week.
The results are now out, and there are more than a few surprises in there that investors should take a look at. And they could have an impact on your decision whether to invest in the pot stock.
Image source: Getty Images.

1. Acquisitions boosted revenue, but not even to a two-year high
Sundial has struggled to expand its business over the past couple of years as a highly competitive marijuana industry has frustrated many producers. What’s telling is that even with the inclusion of Inner Spirit holdings, which Sundial acquired on July 20, 2021, sales for the year were still a modest 22.7 million Canadian dollars — not enough to make it a record-breaking year nor a high over the past two years.

Source: Company filings. Chart by author.
2. Adjusted EBITDA soared 75%
A big positive for investors is that the business has now posted an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profit in three of the past four quarters. At CA$18.4 million, fourth-quarter EBITDA was also 75% higher than the CA$10.5 million that Sundial reported in the prior quarter. Even though this is an adjusted profit figure, it has become a useful metric in the cannabis industry to assess a company’s financial performance; net income can be volatile due to inventory revaluations and impairments.

Source: Company filings. Chart by author.
3. Retail is a much more profitable segment for the business
One of the reasons Sundial’s adjusted EBITDA improved was that the inclusion of retail operations into its business has improved its margins. Gross margin from cultivation and production activities was negative in the fourth quarter, whereas the retail business was positive, and its margins were around 50% of revenue. Shifting more into retail could mean better long-term results for Sundial.

Source: Company filings. Chart by author.
4. Sundial is anticipating a reverse stock split
Trading at less than $0.50 a share, Sundial’s stock is nowhere near the $1 it needs to be to remain listed on the Nasdaq. In the company’s earnings release, it mentioned that “if there is no significant change in market conditions, Sundial intends to implement a reverse share split in the third quarter of 2022.”
Although that technically won’t impact your overall investment in Sundial (you’ll just have fewer shares), it’s a negative sign to the public that the stock isn’t doing so well. That by itself could lead to more selling.
Is Sundial Growers a buy?
The latest quarterly results didn’t inspire much confidence in investors, and Sundial’s stock fell by as much as 6% after the earnings report came out. Its shares continue to trade even lower today.
While there were some positives for investors to take away from the latest report, Sundial’s operations are simply too much of a question mark. Given its ongoing transition, which includes incorporating alcohol producer Alcanna into its results later this year (the acquisition closed on March 31), the safest option for investors remains to wait and see how the business looks once these integrations are all complete.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. –

Cannabis producer Sundial Growers (NASDAQ: SNDL) has been undergoing many changes over the past year. Meme hype allowed it to raise significant capital and gave it the confidence to be more aggressive by taking on multiple acquisitions. As a result, the company’s accountants were busy doing year-end work, and the business had to delay the filing of its latest earnings results until just this past week.

The results are now out, and there are more than a few surprises in there that investors should take a look at. And they could have an impact on your decision whether to invest in the pot stock.

Image source: Getty Images.

1. Acquisitions boosted revenue, but not even to a two-year high

Sundial has struggled to expand its business over the past couple of years as a highly competitive marijuana industry has frustrated many producers. What’s telling is that even with the inclusion of Inner Spirit holdings, which Sundial acquired on July 20, 2021, sales for the year were still a modest 22.7 million Canadian dollars — not enough to make it a record-breaking year nor a high over the past two years.

Source: Company filings. Chart by author.

2. Adjusted EBITDA soared 75%

A big positive for investors is that the business has now posted an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profit in three of the past four quarters. At CA$18.4 million, fourth-quarter EBITDA was also 75% higher than the CA$10.5 million that Sundial reported in the prior quarter. Even though this is an adjusted profit figure, it has become a useful metric in the cannabis industry to assess a company’s financial performance; net income can be volatile due to inventory revaluations and impairments.

Source: Company filings. Chart by author.

3. Retail is a much more profitable segment for the business

One of the reasons Sundial’s adjusted EBITDA improved was that the inclusion of retail operations into its business has improved its margins. Gross margin from cultivation and production activities was negative in the fourth quarter, whereas the retail business was positive, and its margins were around 50% of revenue. Shifting more into retail could mean better long-term results for Sundial.

Source: Company filings. Chart by author.

4. Sundial is anticipating a reverse stock split

Trading at less than $0.50 a share, Sundial’s stock is nowhere near the $1 it needs to be to remain listed on the Nasdaq. In the company’s earnings release, it mentioned that “if there is no significant change in market conditions, Sundial intends to implement a reverse share split in the third quarter of 2022.”

Although that technically won’t impact your overall investment in Sundial (you’ll just have fewer shares), it’s a negative sign to the public that the stock isn’t doing so well. That by itself could lead to more selling.

Is Sundial Growers a buy?

The latest quarterly results didn’t inspire much confidence in investors, and Sundial’s stock fell by as much as 6% after the earnings report came out. Its shares continue to trade even lower today.

While there were some positives for investors to take away from the latest report, Sundial’s operations are simply too much of a question mark. Given its ongoing transition, which includes incorporating alcohol producer Alcanna into its results later this year (the acquisition closed on March 31), the safest option for investors remains to wait and see how the business looks once these integrations are all complete.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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